By Katherine K. Chan, Reporter
THE PHILIPPINE ECONOMY could get a lift from improved sentiment, remittances and holiday spending in the fourth quarter, although faster inflation could weigh on consumption, the University of Asia and the Pacific (UA&P) said.
In a report released on Wednesday, UA&P said economic growth in the fourth quarter could be slightly stronger than in the previous quarters.
“We expect stable remittances, improving business and consumer sentiment, and holiday effects to provide a slight lift to the Q4 growth picture, though headwinds in the form of inflationary minimum wage adjustments and aggressive El Niño season have materialized, which may result in faster inflation readings starting September,” it said.
Cash remittances from overseas Filipinos rose 1.9% year on year to a seven-month high of $3.24 billion in July, according to central bank data.
The Bangko Sentral ng Pilipinas’ latest business expectations survey showed that companies’ confidence index for the next quarter jumped to 24.6% in August from 3.7% in July.
The central bank attributed the improvement to expectations of stronger demand for consumer and financial products and services and increased business activity during the holiday and rice harvest seasons.
Its consumer expectations survey showed the quarter-ahead confidence index improved to -0.8% for July to September from -16.3% in the second quarter.
Consumers cited expectations of higher earnings, additional sources of income and more job opportunities over the next three months.
A positive confidence index means optimists outnumber pessimists, while a negative reading indicates the opposite.
UA&P also expects labor market conditions to improve in the latter part of the year as the weather improves and businesses prepare for the holiday season.
“Employment should recover by September with less rain and as firms begin to produce for the Christmas season,” it added.
The unemployment rate rose for a third straight month to an over four-year high of 6.01% in July from 5.3% a year earlier and 4.9% in June, based on Philippine Statistics Authority data.
However, UA&P said price pressures from the recent minimum wage increase and severe El Niño could cloud the outlook.
“The fresh run-up in crude oil prices, transport and some food products will likely impact inflation starting September,” it said.
The BSP on Wednesday said inflation might have accelerated to 6.4% to 7.4% in September as bad weather pushed up food prices, while the escalation of the Iran war drove fuel prices higher and weakened the peso.
Inflation eased for a fourth straight month to a five-month low of 6.1% in August as food and utility costs declined. However, it remained above the central bank’s 3% target for a sixth straight month, bringing average inflation in the first eight months to 5.2%.
The BSP in August said inflation could peak in the fourth quarter as the effects of severe El Niño feed into food prices, adding to pressures from volatile global oil prices and the minimum wage increase.
The state weather bureau has warned that the country could experience a “very strong” El Niño between September and December, which could persist into the first half of next year.
It said last week that as many as 85 provinces could experience dry conditions, dry spells or drought through the end of March 2027.
The minimum wage in the National Capital Region was raised by P60 on Sept. 26, bringing the daily minimum wage to P755 for nonagricultural workers and P718 for agricultural workers and employees of retail, service and small manufacturing establishments.
WEAK CONSUMPTION
Capital Economics, meanwhile, said in a separate report that the Philippine economy would continue to grapple with weak consumer spending as energy-driven inflation squeezes household budgets.
“The latest rise in global energy prices means inflation will remain elevated at over 6% year on year for the rest of this year,” the London-based think tank said in a report on Tuesday. “That will dampen consumer spending.”
Household spending, which accounts for roughly 70% of gross domestic product (GDP), grew 2.8% in the second quarter, the weakest since 2021.
Weak consumption, a decline in public construction and softer investment dragged economic growth to a post-pandemic low of 2.3% in the second quarter. GDP growth averaged 2.6% in the first half.
“Even once the effects of the energy shock fade, the recovery will be held back as weak business confidence weighs on investment,” Capital Economics said.
It said the Philippines remains highly vulnerable to energy shocks, while El Niño could put further pressure on food prices.
“Meanwhile, El Niño threatens to harm agricultural output and poses an upside risk to the inflation outlook,” it said.
Capital Economics expects GDP growth to slow to 3% this year before recovering to 4.5% in 2027 and 5.5% in 2028.
The government is targeting economic growth of 3.5%-4.5% this year and 5%-6% from 2027 to 2030.
Capital Economics expects inflation to reach 5.6% by yearend before easing to 3% in 2027 and 2.3% in 2028.
“As inflation drops back over 2027, the BSP’s focus is likely to shift towards supporting the weak economy with some interest rate cuts,” it said.
The central bank has raised its key policy rate by 75 basis points (bps) to 5% since it began tightening in April.
BSP Governor Eli M. Remolona, Jr. has left the door open to further tightening to bring inflation closer to target. The Monetary Board has two rate-setting meetings left this year on Oct. 22 and Dec. 17. — Katherine K. Chan