The Philippine economy will likely achieve its full-year growth target of 6.5-7.5%, despite soaring inflation and a sluggish jobs market, Moody’s Analytics said.
“The Philippines will battle inflation pressures, slowing growth and a challenging labor market… Nonetheless, we expect the Philippine economy to still meet the official 2022 growth target of 6.5-7.5%,” .
Gross domestic product (GDP) expanded by 7.4% in the second quarter, slower than 12.1% a year earlier and 8.2% in the first quarter, preliminary data from the Philippine Statistics Authority showed.
In the first half, GDP growth averaged 7.8%.
Socioeconomic Planning Secretary Arsenio M. Balisacan on Tuesday expressed confidence the full-year growth targets will be achieved.
He said the economy would need to grow by 5.3% in the second half to achieve the 6.5% target. To hit the 7.5% goal, he said GDP would have to expand by an average of 7.2% in the second semester.
Moody’s Analytics said policy rate hikes will also likely impact growth this year.
“The Bangko Sentral ng Pilipinas (BSP) is expected to put forward another rate hike in August, albeit a smaller one than July’s 75-basis point (bp) hike. The downside risk of higher interest rates is a squeeze on household spending, a key driver of GDP growth,” it said.
The Monetary Board will have its next policy review on Aug. 18. The BSP has raised rates by 125 bps so far since May.
Meanwhile, Moody’s Analytics said household spending may be vulnerable in the second half, as inflation continues to bite.
Second-quarter data showed household consumption expanded 8.6% year on year, but contracted 2.7% quarter on quarter, reflecting the impact of soaring inflation on domestic demand.
Inflation surged to a near four-year high of 6.1% in June, bringing average inflation to 5.5% for the second quarter.
“Election-related spending didn’t give growth much of a lift, and services surprised on the downside, contracting 0.4% quarter on quarter. The service sector employs the most people, so a contraction spells trouble for the labor market,” Moody’s Analytics said.
The services sector is the largest employer, accounting for 56.5% of jobs in June.
The unemployment rate stood at 6% in June, unchanged from May. However, the total number of unemployed Filipinos reached 2.990 million in June, 62,000 higher than the 2.927 million in May.