Philippines growth outlook cut as BMI lowers GDP forecast after Q3 slowdown

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Philippines GDP forecast cut

Highlights

Fitch Solutions unit BMI cut its 2023 Philippine GDP growth forecast to 2.6% from 3% after Q3 output slowed to 2.1%.
Persistent inflation, with October consumer prices rising 7.8%, and weak household consumption growth at 2.4% are restraining domestic demand into 2024.
BMI reduced its 2027 growth forecast to 4% from 4.5%, citing ongoing weak momentum, though public spending and tech exports may support recovery.

Inflation and weak consumption reshape outlook

As reported by BusinessWorld, citing BMI, the Fitch Solutions unit cut its Philippine GDP growth forecast for this year to 2.6% from 3% after third-quarter output growth slowed to 2.1%. That brought average growth for the year to date to 2.5%, with domestic activity held back by softer household consumption, agriculture and investment.

BMI said elevated inflation will continue eroding purchasing power and restraining spending into next year. Consumer price growth accelerated to 7.8% in October, the fastest pace in nearly four years, as higher energy costs fed through to oil, transport and utility expenses, while inflation stayed above the Bangko Sentral ng Pilipinas target for an eighth straight month.

Household consumption, which makes up more than 70% of Philippine GDP, grew just 2.4% in the third quarter, its weakest reading in more than five years. BMI said the delayed effects of monetary tightening, higher borrowing costs, weaker labor market conditions and deeply negative consumer confidence are also limiting the scope for a near-term rebound.

The agriculture sector is also expected to remain a drag, with Super El Niño pressures extending into early 2027. BMI said crop disruption and weaker rural incomes are likely to weigh on both farm output and consumer spending beyond the sector itself.

Public spending and exports may support 2027 recovery

BMI also lowered its 2027 Philippine growth forecast to 4% from 4.5%, saying weak momentum is likely to carry into next year. If that view holds, the Philippines would miss the National Government’s growth target for a fifth straight year, with the official goal set at 5% to 6% for 2027.

The firm said faster public capital spending could help drive a recovery, even though gross capital formation contracted by 0.2% in the third quarter for a fifth consecutive quarterly decline. Public construction also fell for a sixth straight quarter, but BMI said the depressed level of state investment leaves room for renewed spending to lift activity, with a sharper recovery more likely in 2027 than in the fourth quarter of 2026.

BMI added that stronger exports, especially from technology demand linked to the artificial intelligence boom, could partly offset soft domestic spending next year. It said a weaker peso, strained household finances and potentially lower oil prices in the second half of 2027 may also improve net export support.

Separately, Nomura said another 50-basis-point rate increase by the Bangko Sentral ng Pilipinas in December remains possible despite weaker growth. The Japanese financial group cut its own full-year Philippine GDP growth forecast to 3% from 3.8%, although it still expects fourth-quarter growth to rebound to above 4% year on year, supported by base effects and a pickup in public-sector and infrastructure spending.

We have previously noted that planned Philippines bond reforms could broaden liquidity, though wider investment constraints may still limit growth.

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