PH economy grows slower at 5.6% in 2023, misses gov't target

The Philippine economy grew slower at 5.6% in year 2023, falling short of the government's target as elevated interest rates resulting from high inflation environment dampened consumption, according to data released by the Philippine Statistics Authority (PSA) on Wednesday.

The economy, as measured by gross domestic product (GDP) or the total value of goods and services produced in a period, grew by 5.6% from October to December 2023, PSA chief and National Statistician Claire Dennis Mapa said at a press conference.

This is slower than the 7.1% growth rate seen in the fourth quarter of 2022. It is also a deceleration from the upwardly revised third quarter 2023 GDP growth rate of 6%.

The fourth quarter economic performance brought the full-year 2023 economic growth rate to 5.6%, slower than the 7.6% full-year 2022 GDP growth.

This is below the government's target range of 6% to 7% for 2023's full-year GDP growth.

“While this growth is below our target of 6 to 7% for this year, this keeps us in the position of being one of the best-performing economies in Asia,” National Economic and Development Authority (NEDA) Secretary Arsenio Balisacan said during the press briefing.

Comparing the growth rates of neighbors in the region, the Marcos administration’s chief economist said the Philippines’ fourth quarter growth surpassed that of China (5.2%) and Malaysia (3.4%) while falling behind Vietnam (6.7%).

“More importantly, our full-year GDP for 2023 is now 8.6% higher than pre-pandemic levels,” Balisacan said.

High inflation, interest rates

The NEDA chief said the slowdown seen in 2023 could be attributed “possibly to effects of past interest rate increases.”

The Bangko Sentral ng Pilipinas’ policy-setting Monetary Board has raised the benchmark interest rate by 450 basis points since May 2022 to temper inflation, which resulted from global supply disruptions and economic uncertainty following Russia’s full-scale attack and invasion of Ukraine since February 2022.

Notably, the Philippines’ full-year inflation — which measures the rate of increase in the prices of goods and services — accelerated to 6% from 5.8% in 2022.

“The impact of inflation is on Household final consumption expenditure. We saw the impact on food expenditure… directly affected by inflation,” Mapa said.

Spending on food for the whole year grew at 8.1%, slower than 12.4% in 2022.

“We are concerned about the low growth in real spending on food due to high food prices, though it has moderated in recent months,” Balisacan said.

Meanwhile, household final consumption expenditure decelerated to 5.3% from 7% in the previous quarter in 2022. 

For the whole year, household spending slowed down to 5.6% from 8.3% in 2022.

“The government will be relentless in managing inflation, especially for basic commodities such as food. Our efforts include improving the efficiency and building resiliency of the agriculture value chain, utilizing strategic trade policy when domestic production is inadequate, and establishing mechanisms to empower consumers to exercise their market power to combat inflation,” Balisacan said.

Likewise, government final consumption expenditure contracted by 1.8% in the fourth quarter, from 3.3% growth in the same period in 2022.

Full year, government spending grew 0.4%, slower than the 4.9% growth in 2022.

Balisacan said the decline in state spending last year was “largely due to the fiscal consolidation program.”

“Recall that in 2022, a lot of government resources were spent on the vaccination program, on top of the elections held in May,” the NEDA chief said.

For the 5.6% GDP growth in 2023, the agriculture, industry, and services sectors contributed 0.1 percentage points, 1.1 percentage points, and 4.4 percentage points, respectively, to the total economic performance last year.

Year-on-year, the agriculture sector grew by 1.2%, industry grew 3.6%, and services grew 7.2% in 2023.

“We need to encourage expansion in the sectors that serve the construction industry; namely, manufacturing, mining and quarrying, EGW (electricity, gas and water), and even certain services subsectors. Skills training programs will need to be expanded, both in scope and coverage, to ensure an adequate supply of construction and related workers,” Balisacan said.

“Demand for agricultural output will remain strong – whether for household final consumption, as inputs to industry, or for exports. We will need to improve the competitiveness of the sector using research and development, cutting-edge technology, upgraded post-production facilities, value-adding investments, and improved packaging and marketing, to name a few,” he added.

Total investments in 2023 grew by 5.4%, slower than the 13.8% growth seen in 2022.

“A major effort will be made to address critical factors affecting investment decisions. We shall improve the ease of doing business through digitalization and continuous streamlining of policies and regulations; accelerate the execution of game-changing public infrastructure projects; facilitate more private-sector investments in energy and telecommunications; and upskill our workforce,” Balisacan said.

Moreover, the NEDA chief said the weak global economy weighed heavily on the country’s export of goods, which declined by 7.3% while exports of services grew by 13.6%.

“We expect the growth in services to maintain its trajectory as international tourism rebounds. We will present international tourists with a pleasant travel experience, beginning with improved airport services, simplified travel requirements, and most especially, a diverse range of tourism products,” Balisacan said. — VDV, GMA Integrated News