MANILA (UPDATE 2) - The Philippine economy expanded at a faster clip of 5.9 percent in the third quarter of 2023 as government spending picked up pace, the Philippine Statistics Authority said on Thursday.

The July to September GDP growth was higher than the 4.8 percent median forecast in a survey of analysts done by ABS-CBN. It was also faster than the 4.3 percent clip in the second quarter, but still below the 6.4 percent growth in the first quarter.

“Major economic sectors, namely: agriculture, forestry, and fishing, industry, and services all posted positive growths in the third quarter of 2023,” the PSA said.

The National Economic and Development Authority said the third quarter figure was a “marked improvement” from the April to June growth.

“This performance makes our economy the fastest among the major emerging economies in Asia that have released their third quarter 2023 GDP growth,” said NEDA Secretary Arsenio Balisacan.

He said that Vietnam posted 5.3 percent GDP growth during the period, while Indonesia and China grew 4.9 percent, and Malaysia 3.3 percent.

The third quarter figure brings the average growth for the first three quarters to 5.5 percen t, Balisacan said. This means that for the country to hit the government’s target of at least 6 percent growth for 2023, GDP needs to grow at least 7.2 percent in the fourth quarter, he added.

The NEDA chief attributed the quicker Q3 growth to government spending. Balisacan noted that household consumption growth actually slowed down in the third quarter as food inflation increased. However, government spending picked up the slack.

Household consumption growth slowed down to 5 percent year-on-year during the period from 5.5 percent in Q2 as food inflation increased.

Meanwhile, government final consumption expenditure grew 6.7 percent in the third quarter from -0.7 percent in the second quarter, while government fixed capital formation also rose 26.9 percent in Q3 from 0.7 percent in Q2, he noted.

“Overall, government spending contributed to 2.1 percentage points or 36 percent of the observed 5.9 percent GDP growth,” Balisacan said.

However, Balisacan also said that high inflation and interest rates remain a concern.

After easing for six straight months, inflation quickened again in August and September as food and fuel prices surged. Rice and fuel prices stabilized in October slowing down inflation.

High interest rates meanwhile have been weighing down businesses.

Balisacan said the government is emphasizing the importance of non-monetary measures as it addresses the issue of high inflation.

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While government spending was a big factor in the faster Q3 growth, an analyst believes that this could not be relied on to continue in the following year as economic managers are looking to reduce the country’s deficit-to-GDP ratio.

Alvin Limlingan, managing director, Regina Capital Dev't Corp, said the government is targeting a deficit-to-GDP ratio of 6.1 percent this year, 5.1 next year, and down to 3.5 percent by 2026.

“Unless you have a dramatic increase in tax collection and customs receipts, government spending will not be as robust by definition, if you want to keep the deficit in check,” LImlingan said.

While the services sector has recovered, as seen in the rebound of tourism, the outlook was still not “rosy” as savings have been drawn down, and high interest rates are expected to continue, Limlingan added.

Several multilateral lenders earlier downgraded their 2023 forecast for the country following lackluster growth in the second quarter.

The Asian Development Bank said growth may hit just 5.7 percent this year, down from an earlier forecast of 6 percent.

• ADB downgrades PH economic growth outlook

The International Monetary Fund meanwhile cut its growth forecast to 5.3 percent this year down from its 6.2 percent projection.

• IMF trims PH growth forecast for 2023

The World Bank meanwhile sees GDP this year expanding 5.6 percent.

• World bank sees PH growing 5.6 pct in 2023, among fastest in region