The Philippines economy expanded 2.8% in the first quarter, falling short of analyst expectations and signaling a slowdown in Southeast Asia's third-largest economy. The median forecast called for 3.2% growth, leaving a 40-basis-point miss that reflects weaker domestic demand and slower government spending.
The underperformance raises questions about the Philippines' ability to sustain the growth momentum that carried it through 2023. Economists cited subdued consumer confidence, tighter monetary conditions from the Bangko Sentral ng Pilipinas' rate hiking cycle, and delayed infrastructure spending as headwinds. The central bank raised rates aggressively last year to combat inflation, which has started to cool but continues to constrain household spending power.
Manufacturing activity contracted, and agricultural output disappointed due to weather-related disruptions. Services, typically the growth engine, also showed signs of deceleration. Only government consumption provided a bright spot, though it failed to offset weakness elsewhere.
The miss lands as regional central banks navigate competing pressures. The BSP holds its own policy meeting later this month with markets pricing in a potential rate cut if inflation continues its downward trajectory. A GDP miss strengthens the case for monetary easing, though policymakers will balance that against lingering price pressures.
The Philippine peso weakened on the data, reflecting investor disappointment. The miss also pressures the government's full-year growth target of 6-7%, which now appears less achievable without a significant rebound in Q2 and Q3.
For investors, the slowdown complicates valuations of Philippine equities and raises concerns about emerging market growth dynamics more broadly. The PSEi composite index, home to major banks and conglomerates, faces renewed selling pressure if the data signals a longer period of subtrend expansion.
THE BOTTOM LINE: A Philippine GDP miss below