THE Philippine economy expanded faster than expected in the first quarter (1Q23), as resilient post-pandemic demand helped defy elevated inflation and the central bank’s aggressive monetary tightening.

GDP in the three months through March rose 6.4% from a year earlier, the Philippine Statistics Authority said on May 11. Although faster than the 6.2% median estimate in a Bloomberg survey, it marks the slowest expansion since the economy exited the pandemic-induced downturn.

The economy was supported by strong pent-up demand, National Economic and Development Authority (NEDA) secretary Arsenio Balisacan said at a briefing in Manila, calling it a “promising beginning to 2023”. This, even as 1Q consumption growth slowed from a year ago amid the fastest inflation in 14 years and the highest borrowing costs in 16 years.

Compared to the previous three months ended December, the economy grew 1.1% against an estimate of 0.7%. The stock index rose and is set for third day of gains while the peso fell against the dollar after the data.

The 1Q performance provides a boost to the government’s target of achieving 6% to 7% fullyear growth. While that’s slower than last year’s 7.6% expansion — the fastest in almost half a century — the South-East Asian nation is poised to remain a bright spot in a world facing risks to growth from tighter monetary policy.

“Growth was robust and slightly higher than anticipated,” said Irene Cheung, senior FX strategist at Australia & New Zealand Banking Group in Singapore. “This may mean that domestic demand will remain strong. This will sustain the market’s concern over the countr y’s wide trade deficit” and weigh on the peso.

NEDA’s Balisacan warned that raising interest rates further may dampen GDP growth ahead as he foresees pent-up demand easing. He expects the downtrend in consumer price gains to continue, implying there’s room for the central bank to pause monetary tightening.

What Bloomberg Economics Says…

Slower 1Q growth provides some room for the Philippines’ central bank to pause its tightening cycle this month. It’s still a very close call because a broad swath of core prices continues to rise strongly. But easing demand-pull pressures suggests core inflation will start to cool more quickly. — Tamara Mast Henderson, Asean economist

Bangko Sentral ng Pilipinas (BSP), which has raised the policy rate by 425 basis points since May 2022, has said it will consider 1Q GDP data and inflation numbers in deciding monetary policy settings this week.

Snapshot of GDP print:

• 1Q services output rose 8.4% year-on-year

• Farm sector grew 2.2% from a year earlier

• Industrial production gained 3.9% from a year ago

BSP Governor Felipe Medalla has signalled openness to pause the central bank’s most aggressive tightening cycle in two decades at the May 18 meeting amid signs of cooling pressures. Inflation has slowed since February and was at an eight-month low in April.

For NEDA’s Balisacan, last quarter’s GDP slowdown was temporary. “The favourable investment climate that will come out as a result of decreased inflation will more than outweigh any residual effects of the past increases in interest rates,” he said. — Bloomberg

• This article first appeared in The Malaysian Reserve weekly print edition