The slowing economy is expected to persist for the remainder of the year, with consumers facing the challenge of rising prices, coupled with a slowdown in the growth of remittances from overseas Filipinos.
Following the release of the first-quarter report, economists have observed a softening in domestic demand, indicating a decrease in the willingness of Filipinos to purchase and utilize goods and services. This trend poses a challenge for the consumption-driven economy of the Philippines.
Shivaan Tandon, an economist at Capital Economics, attributed the deceleration in demand to the increase in housing and utilities expenses from January to March, as well as the subdued growth in overseas Filipino remittances.
Tandon said that these unfavorable factors have reduced real incomes and dampened the spending of Filipino consumers.
Additionally, Tandon noted that the elevated interest rate environment has hindered investment, which continues to lag significantly behind pre-pandemic levels.
“With growth in remittances set to slow on the back of weaker growth abroad and elevated interest rates at home weighing on credit demand, domestic demand is likely to remain subdued for the rest of the year,” Tandon said.
Nicholas Mapa, a senior economist at ING Philippines, meanwhile, noted that the growth momentum is waning, with all sectors of the economy, except for exports, exhibiting a slowdown in the first three months of the year.
Mapa believes that the lackluster growth could convince the Bangko Sentral ng Pilipinas (BSP) to lower interest rates following a similar move by the US Federal Reserve later this year.
“A sustained deceleration of inflation and disappointment on the growth front could convince the BSP to cut rates as soon as the Fed does later this year,” Mapa said.
Makoto Tsuchiya, an economist at Oxford Economics, also said the performance of the country's gross domestic product (GDP) in the first quarter confirmed their view of a softening in domestic demand for this year.
While exports exceeded expectations, Tsuchiya pointed out that this was primarily due to the growth in business services exports, which are typically volatile and therefore unlikely to be sustained.
“We maintain our view that domestic demand will soften this year, while the improvement in the external sector will be a gradual process,” Tsuchiya said.
The three economists are forecasting that the economy will grow at a pace below the 6.0 percent to 7.0 percent target set by the Marcos administration.
Oxford Economics expects GDP to increase by 5.2 percent, ING Philippines projects 5.4 percent growth, and Capital Economics forecasts a 5.5 percent growth rate for this year.