GDP growth declines in Q3 due to extreme weather

GDP growth disappoints markets: Economic activity softened in the third quarter, with GDP expanding 5.2% year on year (Q2: +6.4 yoy) and marking the softest expansion since Q2 2023. The deterioration was worse than markets had anticipated and was largely due to adverse weather hitting agricultural, industrial and services activity. On a seasonally adjusted quarter-on-quarter basis, economic growth accelerated to 1.7% in Q3, following the previous period's 0.7% increase and marking the fastest expansion since Q3 2023.

Public spending, investment and net exports behind deceleration: On the consumption side, government spending growth slowed to 5.0% in Q3 (Q2: +11.9% yoy). Fixed investment growth also waned, to 7.5% in Q3 from Q2’s 9.7%. Additionally, net exports detracted more from overall GDP than in Q2: Exports of goods and services contracted 1.0% in Q3 (Q2: +4.2% yoy), while imports of goods and services growth sped up to 6.4% in Q3 (Q2: +5.3% yoy). More positively, private spending grew 5.1% yoy in the third quarter (Q2: +4.7% yoy), marking the best reading since Q4 2023. With regards to production, the El Niño weather event plus Typhoons Yagi and Gaemi dented activity across the agricultural, industrial and services sectors during the quarter.

Momentum to strengthen ahead but downside risks loom: Looking ahead, GDP growth is set to gain steam by end-2025 , pushing full-year growth above 2024’s projection. Domestic demand and exports are both set to accelerate, buoyed by lower inflation and interest rates domestically and globally. That said, policy uncertainty and potential protectionism under incoming U.S. President Trump are key downside risks.

Panelist insight: ANZ analysts Arindam Chakraborty and Sanjay Mathur commented on the outlook: “The resilience in the Philippines’ labour market and steady growth in remittances will moderately buttress personal consumption going forward, in our view. We stress on ‘moderate’ as the steady labour market is partially offset by the need for households to rebuild savings as relayed in the household sentiment index.” United Overseas Bank analysts Julia Goh and Loke Siew Ting were pessimistic on the outlook: “Given that 3Q24 GDP growth fell short of our initial estimate while in 4Q24 economic activities may continue to face challenges from external uncertainties and adverse weather conditions, we slash our 2024 full-year real GDP growth projection to 5.5% (from 6.0% previously, official est: 6.0%-7.0%, 2023: 5.5%). […] We also downgrade our growth outlook for 2025 by the same quantum to 6.0% (from 6.5% previously, official est: 6.5%-7.5%) despite the national government proposing a larger budget expenditure for next year and expectations for lower inflation and interest rates”.

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