MANILA — The Philippine economy posted slower growth in the second quarter amid high inflation and interest rates, the state statistics bureau said on Thursday.

The country's gross domestic product expanded 4.3 percent from April to June, which was slower than the 6.4 percent growth in the first quarter, the Philippine Statistics Authority (PSA) said.

This was also slower than the 7.5 percent expansion reported in the second quarter last year.

Wholesale and retail trade, repair of motor vehicles and motorcycles, financial and insurance activities, and transportation and storage were the top contributors to the country's economic growth in June, the PSA said.

All major economic sectors also grew from April to June: agriculture grew by 0.2 percent, industry by 2.1 percent, and services by 6 percent.

On the demand side, household consumption climbed by 5.5 percent, exports grew by 4.1 percent, and imports by 0.4 percent.

Government spending, however, contracted by 7.1 percent, and gross capital formation also shrunk by 0.04 percent.

National Economic and Development Authority (NEDA) Secretary Arsenio Balisacan said that to achieve the 6 to 7 percent growth target for 2023, the economy should grow at least 6.6 percent in the second half of the year.

"Notwithstanding the challenges, we believe this is still attainable," he said.

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Balisacan said the increases in tourism-related spending and commercial investments spurred growth in the second quarter of 2023.

But this was tempered by high commodity prices, the lagged effects of interest rate hikes, the contraction in government spending, and slower global economic growth.

Inflation eased for a sixth consecutive month, although it was still above the government target of 2 to 4 percent. The consumer price index settled at 4.7 percent in July.

Balisacan said government continues to aggressively ensure that inflation will ease.

"The inflation, together with the interest rate hikes are major factors that impact the slowdown of the economy so if we finally are able to lift the inflation problem, we can also partly address the problem with the high interest rates," he said.

Easing inflation has allowed the BSP to pause rate hikes during its last policy-setting meeting. The next meeting is set on August 17.

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Balisacan also attributed the contraction in government spending to the absence of election spending in 2023.

He noted, however, that infrastructure projects are in the pipeline to further boost economic growth.

"We have a lot of that in the current budget, farm-to-market roads for example, that’s quite a significant portion of the budget, and I think that will have to address all of these floods, and the infrastructure needed to address the festering issue on floods," he said.

Balisacan said external factors remained a risk for the growth of the Philippine economy.

"Some of the major economies are not seeing major improvements as far as their business sentiments there," the official said.

"The domestic front, of course there are, we still have 8 to 11 typhoons before the end of the year, and hopefully those ones will not be as serious as the one we had with the monsoon rains, so much downpour, and causing floods and destruction in many places," he said.

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"We hope that we won’t have another intense problems with avian flu or the (African swine fever)," he added.

In 2022, the Philippine economy grew faster than anticipated at 7.6 percent.

Swarup Gupta, industry manager at The Economist Intelligence Unit, said they expect Philippine economic growth will slow to 5.3 percent in 2023.

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"This is primarily due to a slacking in external demand. So global demand is declining, and this leads to a contraction in real exports of goods," he said.

"There is some cushion form services exports, particularly tourism services exports, but we still expect exports of goods and services to contract in real terms over 2023."

"Domestic consumption is going to provide the cushion, the main support to economic growth. We still forecast that private consumption will grow by 5.5 percent in 2023," he added.

He noted, however, that they expect growth to pick up in 2024.

"It’s going to rebound to 7.4 percent, there will be a return of global demand, which will support a return to export expansion," he said.

"And (for) the remainder of our forecast period which is 2025-2027, we expect Philippines economy to actually expand at an average of 6.8 percent per year."

"And this is primarily due to the removal of entry and ownership restrictions for foreign businesses, supply chain diversification because of many organizations trying to delist from China and tring diversify their supply chains, all of these will drive investment growth."

"And of course domestic consumption remains a cushion the Philippines can always depend on," he added.