Philippines' growth momentum cools in the second quarter as inflation soars

It was the slowest growth since the third quarter of 2021. PHOTO: AFP

MANILA (REUTERS) - The Philippine economy's recovery momentum slowed in the second quarter amid high inflation. But the government is confident this year's growth target remains achievable, giving the central bank leeway to further tighten policy to curb price pressures.

Gross domestic product (GDP) was 7.4 per cent higher in the June quarter than a year earlier, growing more slowly than the downwardly revised 8.2 per cent annual rate seen in the previous quarter.

It was the slowest growth since the third quarter of 2021, but the second-fastest so far in Asia for the second quarter of 2022, Economic Planning Secretary Arsenio Balisacan said Tuesday (Aug 9).

"Our economy is doing relatively well," he told reporters, saying the second-quarter performance was still in line with this year's target for growth in full-year GDP of 6.5 per cent to 7.5 per cent.

"We can still handle further (central bank) rate hikes," he said.

Mr Balisacan attributed the second-quarter slowdown to weak agricultural production amid high input costs and to easing growth in manufacturing, which he said might also be partly due to inflationary pressures.

Second-quarter growth is "considered decent", said Mr Michael Ricafort, an economist at Rizal Commercial Banking in Manila.

It was driven by measures to further re-open the economy towards post-pandemic normalcy, he said.

On a seasonally adjusted basis, however, the economy contracted 0.1 per cent in April-June from three months earlier, when quarterly growth had been 1.5 per cent, the government said.

Economists expect the Bangko Sentral ng Pilipinas (BSP) to remain in policy-tightening mode to tame inflation, which is widely projected to exceed the central bank's target for a 2 per cent to 4 per cent rise in year-average prices.

The BSP has flagged the possibility of raising key interest rates further by 50 basis points at its Aug 18 policy meeting, confident the economy can withstand a less accommodative policy.

It has raised interest rates by 125 basis points since the beginning of the year to tame inflation, which soared to its fastest pace in nearly four years in July.

Accelerating inflation is likely to hit consumption, and growth in full-year GDP could settle at the low end of the government's target, said Mr Nicholas Mapa, a senior economist at ING.

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