The country’s economic growth slowed sharply in the second quarter, official data showed Thursday, as high inflation, a drop in government spending, and interest rate hikes dampened activity.
The figures released by the Philippine Statistics Agency showed that the gross domestic product expanded by 4.3 percent from a year ago, compared with 6.4 percent in the first three months.
Data showed this was the slowest GDP growth posted since the -3.8 percent in the first quarter of 2021. This brings the first-half average to 5.3 percent, lower than the target range of 6 to 7 percent.
It was also below the median analyst forecast of 6.0 percent and the slowest since 2011, excluding the years 2020 and 2021 when the COVID-19 pandemic smashed the economy, Bloomberg said.
The economy grew by a 46-year high of 7.6 percent in 2022 on the reopening of the economy to greater normalcy.
The government’s economic management team said second-quarter growth was underpinned by increased tourism spending and commercial investment.
But the pace was “tempered by high commodity prices, the lagged effects of interest rate hikes, the contraction in government spending, and slower global economic growth”, they said in a statement.
In an online briefing, National Economic and Development Authority
Secretary Arsenio Balisacan said to achieve at least the lower end of the target range, the economy must grow by 6.6 percent in the second half.
“Notwithstanding the challenges, we believe this is still attainable,” Balisacan said.
Government spending fell by 7.1 percent from the same period last year when expenditure was inflated by national elections.
“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.”
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 grew by 5.3 percent; financial and insurance activities, 5.0 percent; and transportation and storage, 17.3 percent.
Major economic sectors, namely: Agriculture, forestry, and fishing, Industry, and Services all posted positive growths in the second quarter of 2023 with 0.2 percent, 2.1 percent, and 6.0 percent, respectively.
On the demand side, Household Final Consumption Expenditure grew by 5.5 percent in the second quarter of 2023. The following items also increased: Exports of goods and services, 4.1 percent, and Imports of goods and services, 0.4 percent.
Meanwhile, Government Final Consumption Expenditure and Gross capital formation posted a contraction of -7.1 percent and -0.04 percent, respectively.
The Gross National Income grew by 8.6 percent in the second quarter of 2023. Likewise, Net Primary Income from the Rest of the World grew by 90.6 percent during the period.
Balisacan said the factors that pulled down the economy in the April-to-June period were the lagged effects of higher interest rates imposed by local monetary authorities since last year; inflation that eased since the peak of 8.7 percent in January but remained elevated; slower government spending; and bleak global economic outlook.
“Last year [2022] was also an election year… But this is a short-term phenomenon and we hope it will be the slowest growth this year,” Balisacan said. Balisacan also hopes that the average of eight to 11 typhoons expected before the end of the year would not cause serious damage to infrastructure and the agriculture sector.
“We hope those will not be serious just like we had previously that caused floods and destruction in many places,” Balisacan said.
But Capital Economics senior Asia economist Gareth Leather said the slowdown in GDP was “broad-based” and concerns over core inflation meant interest rates were unlikely to come down any time soon.
The Philippine central bank has raised interest rates by 425 basis points since May last year, which Leather said was “one of the most aggressive tightening cycles in the region”.
Leather cut his full-year growth forecast from 5.5 percent to 4.5 percent.
Rizal Commercial Banking Corp. chief economist Michael Ricafort said the 4.3 percent GDP growth in the second quarter “could mathematically be the slowest for 2023 due to the relatively higher base after the presidential, national, and local elections a year ago, given the one-time non-recurring nature of election-related spending that is absent this year.”
But Ricafort expects GDP growth could normalize more sustainably in the coming quarters at the 5 percent to 6 percent levels, in view of the continued normalization of GDP base effects.
He said the GDP numerator was also weighed by higher inflation that impacted spending and higher interest rates that led to higher borrowing costs that slowed down investments.
Oxford Economics said the economy was feeling the impact of monetary tightening done by the Bangko Sentral ng Pilipinas to rein in inflation. “We think the outlook remains challenging.
Today’s print indicates the lagged impact of monetary tightening on growth is finally kicking in, which we expect will last for some time. Despite the pickup in exports, the external outlook is clouded.
We forecast global growth will slow towards the end of the year, which will weigh on the Philippines’ goods exports,” it said. It said the second-quarter data added weight to its expectation that the Bangko Sentral ng Pilipinas was unlikely to hike the policy rate in its next meeting and raise the risk the central bank may start cutting rates sooner than its Q1 2024 expectation.
In a joint statement, the economic managers composed of Finance Secretary Benjamin Diokno, Budget Secretary Amenah Pangandaman, and Balisacan said while government expenditure contracted by 7.1 percent in the absence of election-related spending in the first half of the year, government spending would accelerate in the coming quarters to allow the economy to recover its growth momentum.
“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 (EDG) has already been discussing how various government agencies can expedite the implementation of programs and projects for the rest of the year,” they said.
They said government agencies, including local and regional government entities, are encouraged, if not instructed, 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.
“Meanwhile, to address the adverse impact of the recent typhoons and monsoon rains, we recommend the immediate use of the Quick Response Fund and other disaster-related budgetary instruments of the government,” they said.
“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…. 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,” they said. Balisacan said the government, in the meantime, was sticking to the GDP growth target range of 6 to 7 percent for 2023 despite the sluggish growth in the second quarter, hopeful that improvements could be seen in the remaining months of the year.
The interagency Development Budget Coordinating Committee in June 2023 kept the target range for the year and its growth assumption of 6.5 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. With AFP