Lower GDP base in the 3rd quarter could quantitatively lead to faster year-on-year GDP growth after the higher base in the 2nd quarter
In a recent Saturday News Forum in Quezon City which we co-host, we asked Michael Ricafort, the Chief Economist at Rizal Commercial Banking Corp., what Filipinos can expect in terms of economic performance in the next six months.
Here’s what he explained to us.
Our economic situation has vastly improved after the end of lockdowns and the state of public health emergency due to COVID-19 last year.
We have no more restrictions, so the economy has opened up and recovery is in full swing.
The services sector, including local and foreign tourism, continues to grow; this is a low-hanging fruit at present.
Various other sectors continue to open up.
For example, students have returned to in-person learning, more passengers use the public transport system, and micro, small and medium enterprises have boosted economic activity, contributing to overall economic growth.
Other major contributors to economic recovery are OFW remittances growing at the rate of 3 to 4 percent to more than $40 million dollars annually.
Then there’s the BPOs or Business Process Outsourcing, which also continues to post growth to more than US$35 billion per year. The Philippines is number two in BPOs in the world; in call centers we are number one; in OFW remittances, we are number four.
The visit to the Philippines two months ago of Akio Toyoda, the chairman of top global carmaker Toyota, reflects confidence in the Philippines as an investment destination.
He acknowledged that ours is the number 10 biggest market of Toyota vehicles in the world.
The Philippine economy posted a higher gross domestic product growth of 5.9 percent in the third quarter of 2023, the strongest among major economies in Asia.
This is faster than the 4.3 percent growth in Q2 2023 and exceeded the expectations of private sector analysts with a median forecast of 4.9 percent.
The faster GDP growth of 5.9 percent year-on-year in the third quarter of this year is not really surprising and somewhat expected.
We expect similar or even higher GDP growth in the 4th quarter, amid the catch-up in government spending especially on infrastructure, after some underspending/slower spending earlier this year.
Spending during the barangay and SK election towards the end of October also provided a boost to the economy.
The continued recovery of many businesses/industries as the economy further reopened towards greater normalcy has led to higher sales, incomes, jobs, livelihood and other economic opportunities.
But there are also risk factors.
Among these are inflation/higher prices that reduced spending by consumers, businesses, industries, and government.
Another is higher interest rates that increased borrowing and financing costs and put a drag on investments and spending.
The US Federal Reserve and other central banks increased interest rates since 2022 to fulfill their mandate of price stability.
Still another is the geopolitical situation, especially the Israel-Hamas war, which has a potential impact on global crude oil prices and inflation.
And there’s also the risk of economic slowdown or even recession in the U.S., which is the world’s largest economy, after the series of Fed rate hikes since 2022 to better manage inflation.
The Philippine GDP growth estimate could normalize to around 5.5 to 6 percent in 2023 and beyond. We will be among the fastest growing economies in ASEAN with the stabilization of the GDP base (diminishing low base effects).
Before the pandemic, Philippine GDP consistently grew by at least 6 percent from 2012-2019 due to the demographic sweet spot.
Philippine GDP growth will be supported by catch-up spending by the national government, especially on infrastructure.
Employment data will be among the best levels since the onset of the pandemic and economic reopening with no more lockdowns since 2022 and the lifting of the COVID state of public health emergency.
Lower GDP base in the 3rd quarter could quantitatively lead to faster year-on-year GDP growth after the higher base in the 2nd quarter due to the national and local election-related spending a year ago that partly led to slower GDP growth in 2Q 2023.
We can also expect further recovery in foreign and local tourism as a growth driver that creates more jobs and livelihoods for the labor force.
Lower individual income tax rates starting January 2023 for most income brackets as part of the TRAIN Law could lead to increased consumer spending, which accounts for about 70 percent of the economy.
This could lead to faster economic/GDP growth and help ease the adverse effects of recent higher prices.
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