The Philippine economy expanded at a faster pace in the first quarter but the rate fell short of expectations on weaker domestic demand growth amid tight monetary policy.

Gross domestic product grew 5.7 percent from a year ago after rising 5.5 percent in the fourth quarter of 2023, the Philippine Statistics Authority reported Thursday. Growth was seen at 5.9 percent.

On a quarterly basis, economic growth softened to 1.3 percent but better than forecast of 1.0 percent.

On the demand side, household consumption grew notably by 4.6 percent year-on-year, but slower than the 5.3 percent rise in the prior quarter.

At the same time, government spending gained 1.7 percent, reversing a 1.0 percent drop. On the other hand, growth in gross capital formation decelerated to 1.3 percent from 11.6 percent.

Exports of goods and services logged an annual growth of 7.5 percent, in contrast to the 2.5 percent drop in the previous quarter. The growth in imports improved to 2.3 percent from 2.0 percent.

The government target full-year growth at 6-7 percent. However, markets expect the government to miss the target this year.

With growth in remittances to slow due to weaker growth abroad and elevated interest rates at home likely to weigh on credit growth, domestic demand is set to remain subdued this year, Capital Economics’ economist Shivaan Tandon said.

The Bangko Sentral ng Pilipinas is set to hold its monetary policy meeting next week. ING economist Nicholas Mapa expects no adjustment to the current policy settings on May 16.

“However, a sustained deceleration of inflation and disappointment on the growth front could convince the BSP to cut rates as soon as the Fed does later this year,” said Mapa.