GDP growth slows, misses estimates<\/strong><\/p>\n\n\n\n The Philippine economy grew by 4.3% in the second quarter, slowing from last quarter\u2019s 6.4% and posting the slowest growth rate since 4Q 2011 if we exclude the pandemic recession data. The GDP growth figures missed the consensus estimate of 6.0%.<\/p>\n\n\n\n Spending slows as inflation bites<\/strong><\/p>\n\n\n\n Household spending or HFCE, which typically accounts for more than 70% of GDP, contributed 68.8% to total GDP this quarter and growth slowed to 5.5%. This is the first quarter that we saw consumers yielding to elevated inflation, as HFCE held firm in previous quarters. Government spending (GFCE) dropped by 7.1%, although this was coming from a high base last year. Gross capital formation (GCF) remained almost unchanged, while net exports improved but mainly due to lower imports which would be another sign of slowing consuming demand.<\/p>\n\n\n\n Discretionary takes the biggest hit as budgets tighten<\/strong><\/p>\n\n\n\n Drilling down on the HCFE data shows that spending on (1) alcoholic beverages & tobacco, (2) clothing and footwear, and (3) furnishings, household equipment and routine household maintenance, dragged down consumption. Other discretionary spending segments typically associated with \u201crevenge spending\u201d such as (1) recreation and culture, (2) transport, and (3) restaurants and hotels, held firm. <\/p>\n\n\n\n Downtrend in inflation should reflect next quarter<\/strong><\/p>\n\n\n\n However, we are concerned that the next slowdown will be seen in GCF as interest rates remain elevated. As such, we may not see a return to our growth trajectory until the post-pandemic distortions in demand and supply have normalized.<\/p>\n\n\n\n