Philippine economic growth slows down further at 4.3% in Q2 2023

The Philippine economy continued its downtrend as it grew at a slower pace in the second quarter of 2023 — its slowest pace in nine quarters since the country entered the positive territory in the middle of 2021 following a pandemic-induced recession— amid high inflation that tempered consumption during the period, 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 4.3% during the April to June 2023 period, PSA chief and National Statistician Claire Dennis Mapa said at a press conference.

This is slower than the 6.4% growth rate seen in the first quarter of the year and far slower than the 7.5% GDP growth seen in the same quarter last year.

Quarter-on-quarter, it posted a decline of -0.9% during the period.

This also marks the fifth straight quarter of deceleration for the country’s GDP, and its slowest footing in nine quarters since it exited the pandemic-induced recession in the second quarter of 2021.

The economy was pulled out of recession in the April to June period of 2021 with a GDP growth rate of 12%.

The second quarter print brought the year-to-date economic growth rate at 5.3%, according to Mapa.

To achieve the government’s 6% to 7% target, National Economic and Development Authority (NEDA) Secretary Arsenio Balisacan said the economy “needs to grow by 6.6% in the second half.”

“Notwithstanding the challenges, we believe this is still attainable,” Balisacan said, reading the joint statement of the economic team.

The country’s chief economist earlier floated that the second quarter GDP growth is expected to “further moderate.” 

High inflation, interest rates

The slower growth came amid a still high inflation environment and the consequential costly interest rates to temper rising prices.

As of the first half of the year, inflation or the rate of increase in the prices of goods and services clocked in at 7.2%, still far above the government’s comfortable ceiling of 2% to 4%.

To tame inflation, the Bangko Sentral ng Pilipinas (BSP) raised monetary policy rates by a cumulative 425 basis points since May last year.

“For the second quarter, the moderate 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.

Notably, Household Final Consumption Expenditure (HFCE) contracted by 0.1% quarter-on-quarter.

Likewise, Agriculture, Forestry, and Fishing posted a quarter-on-quarter decline of -0.97% in the second quarter.

Industry and Services sectors also saw contractions of 0.7% and 1.02%, respectively, during the period.

“Inflation in the country has been decelerating in recent months, reaching 4.7 percent in July 2023,” Balisacan said.

“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 added.

Balisacan said the improving inflation outlook could spell 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,” the NEDA chief said.

Balisacan also pointed to government underspending as state expenditure contracted by 7.1% “in the absence of election-related spending in the first half of the year.”

The government missed its P2.58-trillion spending program in the first half of 2023 by 6.6%, with actual expenditures amounting to P2.411 trillion, data from the Bureau of the Treasury showed.

Nonetheless, Balisacan said that “government spending will accelerate in the coming quarters to allow us to recover our growth momentum.

Catch-up plan

Balisacan said the catch-up spending will be done through accelerating 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,” he said.

The NEDA chief added that 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,” he said.

“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,” Balisacan added.

The economic team, according to Balisacan, will 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,” Balisacan said.

“To aid in the design of policies and assistance measures, the government will also hold more discussions with sectors observed to be 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,” the NEDA chief said.

The country’s chief economist 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.  —KBK, GMA Integrated News