MANILA: Philippine economic growth cooled to its slowest in two years in the first quarter as red-hot inflation and high interest rates dampened consumption, but a slew of positive data, including a drop in jobless rates, pointed to a rosy outlook for 2023.

Gross domestic product (GDP) expanded 6.4% in the first quarter from a year earlier, the statistics agency said on Thursday, marking its slowest expansion since the first quarter of 2021 when economic output contracted 3.8%.

But even as the Philippines lost momentum in the January to March quarter, it was on track to meet its 6.0-7.0% growth target for the year, Economic Planning Secretary Arsenio Balisacan told a media briefing.

“Despite various risks and challenges, the economic outlook for the Philippines in the near and medium term remains solid,” Balisacan said.

Household consumption growth slowed for a fourth straight quarter in the January to March period to 6.3%, government data showed, reflecting the impact of inflation which hovered at 14-year highs in the first quarter.

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However, working in the country’s favour, Balisacan said inflation appeared to have peaked, which would relieve pressure on the central bank to keep raising interest rates.

“We anticipate this downward trend to continue as inflation eventually eases toward the government’s target range by the fourth quarter of 2023,” Balisacan said.

The central bank has signalled it may pause its aggressive tightening cycle when it meets this month after inflation eased for a third straight month in April to 6.6%, putting it on track to settle within the government’s 2% to 4% target for the year.

A drop in the Philippines’ unemployment rate in March to 4.7% from 4.8% the previous month and from 5.8% in March last year also bodes well for the economy, Balisacan said, as it slowly recovers from the pandemic.

On a quarterly basis, growth slowed to 1.1% from 2.4% in the previous three-month period.

The year-on-year growth of 6.4% beat analysts’ expectations for first quarter GDP to grow 6.1%.

Balisacan said the Philippines was returning to its high-growth trajectory and the government was ready to respond to shield the economy from shocks and risks, including an expected El-Nino induced dry spell.

“El Nino is clearly a risk that we have to manage,” he said.