PH economy grows slower at 6.4% in Q1 2023

The Philippine economy grew at a slower pace in the first quarter of the year — its slowest footing since the country exited the pandemic-induced recession in the middle of 2021 as elevated inflation dampened consumer spending, the Philippine Statistics Authority (PSA) reported on Thursday.

The economy, as measured by gross domestic product (GDP) or the total value of goods and services produced in a specific period, grew by 6.4% during the January to March 2023.

This is slower than the 8% growth rate seen in the first quarter of 2022 and lower than the downwardly revised 7.1% growth recorded in the fourth quarter of 2022.

“Ito din ang pinakamababang paglago matapos ang pitong quarter nang magsimula ang pagbangon ng bansa mula sa pandemiya noong ikalawang quarter ng 2021,” National Statistician Dennis Mapa said at a press briefing.

(This is the lowest growth after seven quarters when the country began its recovery from the pandemic since the second quarter of 2021.)

The economy was pulled out of recession in the second quarter of 2021 with a GDP growth rate of 12%.

While the country’s economic growth print in the first quarter was slower year-on-year and quarter-on-quarter, National Economic and Development Authority (NEDA) Secretary Arsenio Balisacan noted that “we need to exercise caution in interpreting this as a slowdown since the previous year’s growth came from a low base.”

“Rather, the economy is normalizing its previous trend,” Balisacan said.

Expecting external headwinds and slowdown in major advanced economies, the Marcos administration’s economic managers trimmed their economic growth projection for 2023 at 6.0% to 7.0% range from its earlier forecast of 6.5% to 8.0%.

Nonetheless, Balisacan described the first quarter performance as “better-than-expected” and “implies that we are returning to our high-growth trajectory despite the various challenges and headwinds we have faced.”

“However, we have much more work to do to realize our social and economic transformation agenda toward a prosperous, inclusive, and resilient Philippines,” he said. 

In a separate statement, Finance Secretary Benjamin Diokno said the Philippines is on track to hit the government’s growth target of 6.0% to 7.0% “as the economy sustained its growth momentum in the first quarter of 2023… despite high inflation.”

“The sustained trajectory of the country’s output is a welcome development as we navigate through an uncertain global outlook,” Diokno said.

The Finance chief said the first quarter GDP print beats private analysts’ median forecast of 6.0% and is well within the Development Budget Coordination Committee (DBCC)’s growth target.

Balisacan said that among the major emerging economies in the region that released first quarter GDP figures, the Philippines posted the fastest growth compared to Indonesia (5.0%), China (4.5%), and Vietnam (3.3%).  

High inflation’s impact

Inflation, or the rate of increase in the prices of goods and services, clocked at 8.3% amid supply side pressures on food and fuels.

“One cannot discount the slowdown you have seen in the first quarter is partly the effect of high inflation/elevated prices,” Balisacan said.

“Inflation affects the various sectors of the economy through different channels. On the demand side, high inflation can reduce consumer demand. [It] can also affect investment decisions to the extent that monetary responses to high inflation could trigger tightening of money supply so that reduces investment,” the NEDA chief said.

Notably, Household Final Consumption Expenditure (HFCE) grew by 6.3% in the first quarter, albeit slower than the 10% growth seen year-on-year.

“On the supply side, high inflation could reduce investments in various sectors of the economy because of expectations that demand would be lower [as] cost would be higher,” Balisacan said.

Mapa, for his part, said three sectors contributed to the slowdown in the January to March period, namely Mining and Quarrying (-2.2%), Public Administration and Defense (1.5%), and Human Health and Social Work Activities (7.5%).

However, the PSA chief said that all major economic sectors have, nevertheless, posted positive growths —Agriculture, Forestry, and Fishing (2.2%); Industry (3.9%); and Services (8.4%).

Main contributors to the 6.4% first quarter growth were Wholesale and Retail trade, Repair of Motor Vehicles and Motorcycles (7.0%); Financial and Insurance Activities (8.8%); and Other Services (36.5%).

Other items that recorded growth were Government Final Consumption Expenditure (6.2%); Gross capital formation (12.2%); Exports of goods and services (0.4%); and Imports of goods and services (4.2%).

“High inflation remains a challenge, and the Bangko Sentral ng Pilipinas’ move to raise its key policy rates to anchor inflation expectations and ensure price stability, may dampen future growth. But the improvement in the business climate can counter this unintended effect,” Balisacan said.

Diokno said the government will also continue to leverage on structural reforms, such as the amendments to the Public Service Act (PSA), Foreign Investments Act (FIA), Retail Trade Liberalization Act (RTLA), and the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act to build, better, more and foster investment development in the country.

“With the strategies contained in the Philippine Development Plan 2023-2028, we can build a better environment that ensures a consistent path to sustainable and robust growth,” he said. —KBK, GMA Integrated News