The lagged effects of interest rate hikes, contraction in government spending and global challenges pulled down the Philippines’ economic growth to 4.3 percent in the second quarter of 2023 from 6.4 percent in the first quarter and 7.5 percent a year ago, according to the National Economic and Development Authority.
This brought the average gross domestic product growth in the first half of 2023 to 5.3 percent, below the target range of 6 percent to 7 percent, data from the Philippine Statistics Authority showed Thursday.
NEDA Secretary Arsenio Balisacan said to achieve at least the lower end of the target, the economy should grow by 6.6 percent in the second half. “Notwithstanding the challenges, we believe this is still attainable,” he said.
National statistician and civil registrar general Dennis Mapa said the second-quarter expansion was driven by wholesale and retail trade; repair of motor vehicles and motorcycles, which expanded by 5.3 percent; financial and insurance activities, 5.0 percent; and transportation and storage, 17.3 percent.
The agriculture, forestry and fishing sector grew 0.2 percent in the second quarter; industry, 2.1 percent; and services 6.0 percent.
The PSA said that on the demand side, household final consumption expenditure grew by 5.5 percent in the second quarter. Exports of goods and services rose 4.1 percent, while imports of goods and services went up 0.4 percent.
Government final consumption expenditure and gross capital formation shrank 7.1 percent and -0.04 percent, respectively.
The gross national income expanded by 8.6 percent in the second quarter, as net primary income from the rest of the world increased 90.6 percent.
Balisacan identified the underlying growth drivers in the first half. “Employment and jobs are at historic high levels, tourism growth areas are back, investment registration activities have significantly increased and our students are back in school,” he said.
“Since the opening of the economy last year, we have seen improvements in labor and employment conditions, with the services sector continuing to be a reliable source of economic activity, particularly with the recovery of food services and accommodation. We also note that both unemployment and underemployment rates have been declining while the labor force participation rate has been increasing, which implies that net employment generation has also been growing,” said Balisacan.
Balisacan said the moderate second-quarter economic expansion was driven by increases in tourism-related spending and commercial investments, but was tempered by high commodity prices, the lagged effects of interest rate hikes, the contraction in government spending and slower global economic growth.
Balisacan said government spending was expected to recover in the second half of the year. “While government expenditure contracted by 7.1 percent in the absence of election-related spending in the first half of the year, government spending will accelerate in the coming quarters to allow us to recover our growth momentum,” he said.
“To do this, we will accelerate the execution of government programs and projects, including the delivery of public services, under the 2023 national budget. Indeed, the Economic Development Group has already been discussing how various government agencies can expedite the implementation of programs and projects for the rest of the year,” he said.
Balisacan said government agencies, including local and regional government entities, were told to formulate catch-up plans, accelerate and even frontload the implementation of said programs and projects.
“Line agencies already have their catch-up plans and are enjoined to implement these urgently. Moreover, fiscal stimulus activities are underway to increase the productive capacities of both the public and private sectors,” he said.
He said to address the adverse impact of the recent typhoons and monsoon rains, NEDA recommended the immediate use of the Quick Response Fund and other disaster-related budgetary instruments of the government.
Balisacan also noted that inflation decelerated in recent months to 4.7 percent in July 2023. “Nevertheless, we will continue to intensify our supply-side interventions and demand-side management measures to maintain overall price stability amid upside risks such as weather disturbances, including El Niño, trade tensions and the imposition of export bans in other countries,” he said.
“The improving outlook for inflation bodes well for the easing of interest rates and should pave the way for the expansion of activities of businesses, households and the rest of the private sector. The government will also intensify its targeted measures to cushion the impact of high inflation on vulnerable sectors,” he said.
“We shall continue to monitor closely the impact of the global economic slowdown and the recent wave of trade protectionism on the country’s export sector. We will facilitate the diversification of external markets to expand opportunities for our exporters,” the NEDA chief said.
The government will also hold more discussions with sectors adversely affected by the global economic slowdown and shifts in demand preferences as the pandemic wanes and with those that have not yet returned to their pre-pandemic levels in terms of production and capacity, he said.
“The government is continuing its implementation of credit programs designed to provide loans for marginalized farmers and fisherfolk and micro and small enterprises at low-interest rates, with minimal or no collateral, and fewer documentary requirements,” he said.
The government’s economic team also recognized that the country would continue to confront a challenging economic environment in 2023 and 2024.
“The economic team is closely monitoring domestic and external developments and is ready to make policy adjustments to ensure that we attain our medium-term growth targets. We firmly believe that the prospects of the Philippine economy remain strong and positive. Our economy has weathered the worst and most challenging times during the pandemic. Now, we are better equipped and more resilient to withstand the various risks and challenges on both the external and domestic fronts,” said Balisacan.
“Our robust growth strategies and the active participation of all sectors of society, especially our private partners, will keep us on track to achieving our social and economic transformation agenda toward a prosperous, inclusive and resilient Philippines,” he said.
The interagency Development Budget Coordinating Committee earlier kept the 6 to 7 percent GDP target range for the year and its growth assumption of 6.5 percent to 8 percent for 2024 to 2028, taking into account the risks posed by El Nino and other natural disasters, global trade tensions, and value chain disruptions, among other factors.
The economy grew 7.6 percent in 2022, the highest in 46 years, following the reopening of the economy to greater normalcy.
