Philippine economic slump worsens on Iran war, bad weather

[MANILA] The Philippine economy unexpectedly slowed for a fifth straight quarter, raising questions about the central bank’s rate-hike cycle and heaping pressure on President Ferdinand Marcos Jr.

Gross domestic product expanded 2.1 per cent in the three months to September from a year earlier, the statistics agency said on Monday (Nov 9). That compares to 2.4 per cent in the second quarter and was a full percentage point below the median estimate of 3.1 per cent in a Bloomberg News survey.

Agricultural output fell 4.8 per cent in the third quarter, and services growth continued to slow. Farm output was hurt as typhoons battered the climate-vulnerable nation, with El Nino further clouding the outlook.

The peso fell 0.3 per cent and the benchmark stock index dropped as much as 0.7 per cent after the data release, which underscores how deeply the nation is underperforming neighbouring economies. Growth was less than half the pace seen in Indonesia or Malaysia, and less than a quarter that of Vietnam.

The data underscore the damage to the Philippines from the US-Iran war, which has driven up crude oil prices and inflation, forcing the central bank to hike interest rates. The resulting higher cost of living and still-unresolved government corruption scandals have weakened consumer and business confidence.

High food and energy prices constrained consumer spending, a key economic driver which continued to post slower growth. Tighter financial conditions weighed on investments which remained in contraction. Cyclones and the monsoon disrupted farm production, which reduced rural incomes and added to supply pressures. 

THE BUSINESS TIMES INSIGHTS

Powering Asean's Future 2026

Find out how enterprises are navigating power constraints and sustainability targets

ACCESS THE INSIGHTS

The data comes days after the release of the latest inflation print showing an acceleration to 7.8 per cent in October, the fastest pace in almost four years. That was expected to lead the central bank to continue raising rates following a jumbo 50-basis-point hike in October.

Economic Planning Secretary Arsenio Balisacan refrained from calling on the Bangko ng Sentral Pilipinas (BSP) to pause its rate hikes, noting the central bank is trying to cool price gains.

“If the BSP actually succeeds in anchoring the inflation expectation back to the target, then that actually will impact positively consumption and investments,” he said at a briefing in Manila. “It’s not necessarily bad for growth.”

SEE ALSO

The Philippines’ October inflation shock signals tough road to 2027

Still, he said achieving the 2026 growth target of 3.5 to 4.5 per cent is “very challenging at this point given the current environment but we are hoping that the fourth-quarter performance will be better”.

BSP now must weigh the weak economy against surging prices and support for the peso, which has dropped almost 7 per cent to be Asia’s second-worst-performing currency this year. Inflation has remained well above the central bank’s 3 per cent goal since March.

“While we think they should still deliver more jumbo hikes, they may opt for a smaller hike in December because of growth concerns,” said Bank of the Philippine Islands lead economist Emilio Neri Jr. A small hike could leave the peso under greater pressure, he added. 

“This could also increase the possibility of inflation getting de-anchored,” Neri said. “Core inflation is just rising too fast.”

Marcos will also face pressure to act to support the economy, which is heavily dependent on imported energy from the Middle East.

Growth started to slow in the third quarter of last year. At that time, confidence began a lengthy slump after Marcos revealed corruption in government involving billions of pesos in flood-related infrastructure. The graft scandal is unresolved, while Vice-President Sara Duterte, who denies wrongdoing, is on trial in the Senate over alleged unexplained wealth. BLOOMBERG