Expansion eased to 7.4% as higher prices squeezed consumption
The Philippine economy grew at a slower pace of 7.4% on an annual basis in the second quarter, as rising prices of commodities squeezed household consumption, the statistics agency reported on Tuesday.
The expansion of gross domestic product in the April-June period was helped by further relaxation of COVID-19 restrictions and election-related spending, officials said. The expansion was mainly driven by the services sector, which grew 9.1%.
The growth was slower than the 8.6% median forecast in a Reuters poll, an 8.2% expansion in the first quarter and a 12.1% in the second quarter of last year.
On a seasonally adjusted basis, the economy contracted 0.1% in the second quarter as household consumption -- which fuels around 70% of the economy -- shrank 2.7%.
The data suggests that the economy is starting to feel the impact of rising prices, putting pressure on the new administration of President Ferdinand Marcos Jr. Inflation from January to July averaged 4.7%, exceeding the central bank's 2% to 4% target, with the official saying that inflationary pressures will likely persist, hurting growth.
"I think global headwinds, particularly imported inflation, particularly on fuel and food, contributed to the noticeable slowdown," Socioeconomic Planning Secretary Arsenio Balisacan told reporters. "To the extent that [inflation] is expected to continue in the second half, we will likely face some challenges in sustaining that growth."
The Philippine central bank has raised its key interest rate by 125 basis points since May to rein in price increases. Balisacan said the rising borrowing cost is expected to dampen investments and household spending "in the short term."
The central bank is scheduled to review monetary policy next week and has not ruled out raising rates again.
Balisacan said further rate increases have been factored into the 2022 full-year GDP growth target of 6.5% to 7.5%, which was slightly lower than the goal set by Marcos' predecessor Rodrigo Duterte's economic team.
Marcos, who assumed office on June 30, has vowed to prioritize reforming the agriculture sector amid fears of food shortages due to the Ukraine war.
Apart from addressing woes in the agriculture sector and monetary tightening, Balisacan said the government's fight against inflation will also involve cash assistance to poor households.
"That's where we have been focusing our limited resources, to ensure that the most vulnerable will be given relief," he said.