Growth surges to over one-year high in Q2; meets expectations

GDP reading: According to a preliminary reading, GDP growth picked up to 6.3% year on year in the second quarter, from 5.8% in the first quarter and marking the strongest expansion since Q1 2023, in line with market expectations. Stronger domestic demand was the chief engine of the acceleration. On a seasonally adjusted quarter-on-quarter basis, economic growth cooled to 0.5% in Q2, compared to the previous period's 1.1% rise and marking the softest expansion since Q2 2023.

Drivers: On the domestic front, public spending sped up to a 10.7% expansion in Q2 (Q1: +1.7% yoy). Additionally, fixed investment growth accelerated to 9.5% in Q2, following the 2.1% expansion logged in the previous quarter. Public infrastructure projects likely bolstered the reading, as government capital spending surged in April–May. Meanwhile, household spending growth was lackluster, remaining at Q1’s 4.6% in Q2. Discretionary spending on items such as clothing, footwear and housing furnishings cooled, likely tempered by still-elevated interest rates. On the external front, exports of goods and services growth slowed to 4.2% in Q2 (Q1: +8.4% yoy). Conversely, imports of goods and services growth picked up to 5.2% in Q2 (Q1: +2.2% yoy). As a result, net trade detracted 0.9 percentage points from overall growth in Q2, contrasting Q1’s 1.5 percentage point contribution.

GDP outlook: Annual GDP growth is forecast to decelerate from both H1 and Q2 levels in the second half of the year. July’s spike in inflation plus Q2’s upbeat economic activity reading will likely encourage the Bangko Sentral Pilipinas (BSP) to postpone the start of its rate cuts until Q4. In turn, household spending and investment will remain under pressure. That said, the global tech sector upturn should support export growth, and resilient public spending should provide further tailwinds to activity.

Panelist insight: United Overseas Bank analysts Julia Goh and Loke Siew Ting commented on the outlook: “In 1H24, the Philippine economy grew by 6.0% y/y (2H23: +5.8%) across all but agriculture sector, which was in line with our assessment. We expect this momentum to hold up into 2H24 […] on the back of an expected monetary policy easing, moderating inflationary pressure towards year-end, continuation of targeted fiscal policy support and persistent trade recovery in tandem with the ongoing global tech upcycle. This will further affirm our 2024 full-year GDP growth projection of 6.0%.” ANZ analysts Arindam Chakraborty and Khoon Goh said: “The resilience in the Philippines’ labour market will buttress personal consumption going forward, in our view. However, investment growth will remain the primary driver of growth in 2024. With growth in the US economy beginning to ease, external demand is unlikely to be robust.”

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