2.1 Percent and Falling: Why the Philippines Is Lagging Its Neighbours

The Philippine economy grew just 2.1 percent in the third quarter from a year earlier, the statistics agency reported on Monday, down from 2.4 percent in the second quarter and well short of the roughly 3 percent economists had expected. A year ago the same quarter delivered 4 percent. Growth was less than half the pace seen in Indonesia or Malaysia, and the gap with Vietnam is wider still.

The details explain the mood. Agriculture shrank 4.8 percent after typhoons and a strong southwest monsoon hit harvests. Industry was essentially flat. Services, the main engine, grew 3.7 percent and supplied most of the expansion. Household spending rose 2.4 percent, against 4 percent a year earlier, while investment fell 0.2 percent.

Two forces are pressing on households and firms at once. The first is prices. Inflation reached 7.8 percent in October, the fastest in more than three years, with transport costs up about 20 percent, petrol up more than 50 percent and rice up roughly 21 percent. Core inflation, which strips out food and energy, hit 5.4 percent, a sign that higher costs are spreading through restaurants and services. The second is money: the central bank has lifted its policy rate by a cumulative 125 basis points since April, to 5.5 percent, and markets expect another move at the 17 December meeting.

Public investment is a separate drag. Government construction has now fallen for six consecutive quarters as investigations into allegedly ghost, unfinished or substandard flood-control projects have slowed spending and shaken confidence in how money is allocated. A growth-friendly stimulus is hard when the budget’s most visible builder is under audit.

Economic Planning Secretary Arsenio Balisacan still sees a path back to a 5–6 percent pace next year, but only with stronger investment, easing prices and renewed confidence — and he lists energy shocks, El Niño and delays in implementation as risks. The central bank faces an awkward trade: tighten to tame prices and deepen the slowdown, or ease off and risk letting expectations drift.

The peso slipped and stocks dipped after the data. The harder question is whether this is a bad patch or a new, slower normal. For now, the Philippines is a reminder that a region’s average growth hides very different experiences.