Last week, the reported Q2 economic growth data was disappointing, as the year-on-year GDP growth of 4.3 percent was slower than expected. Let’s analyze what happened and find clues on how to improve our situation.
We have found solace in the fact that our economy is less vulnerable to external shocks due to fewer external links. In times of global troubles, this has been seen as a hidden blessing. However, our ASEAN-6 peers, including Indonesia, Malaysia, Singapore, Thailand, and Vietnam, have outpaced us in export earnings and foreign direct investments for over four decades. While this has hindered job and income creation for our people, it has also shielded us from the adverse effects of a world slowdown.
But the recent Q2 numbers of Indonesia, Singapore, and Vietnam have contradicted this belief. These countries actually experienced faster growth in comparison to Q1. In contrast, our economy not only slowed down but actually contracted by 0.9 percent on a quarter-on-quarter basis, after adjusting for seasonality. Furthermore, our price inflation rate in Q2 was 6 percent, almost twice the average rate of our ASEAN-6 peers (3.2 percent).
This suggests that external pressures like the Russia-Ukraine war and oil production cutbacks in the Middle East have contributed to our Q2 slump, but internal weaknesses are also to blame. If we want to improve our prospects for the rest of the year, we need to focus on internal improvements.
According to data from the Philippine Statistics Authority, the transportation and storage industry experienced the largest decline, shrinking by 17.9 percent between Q1 and Q2. There could be several factors at play, including the end of “revenge tourism” and lower volumes of goods to transport. Additionally, worsening city traffic may be discouraging face-to-face engagements, leading to more people choosing to work from home.
On the other hand, information and communication services saw the fastest growth in Q2, aided by the continuous growth in business process outsourcing. Wholesale and retail trade, construction, government services, and the agriculture, fishery, and forestry sector also experienced significant slowdowns. In fact, the agriculture sector only grew by 0.2 percent in Q2, compared to 2.2 percent in Q1, with a 7.5 percent drop in fishery and aquaculture output. This will likely result in higher food prices, exacerbating the already rising food prices abroad.
The dampening effect of surging prices has slowed down household spending, and government consumption spending has also fallen. Investment spending has even shrunk, reflecting the challenging business climate.
Despite slower global trade, our exports managed to grow by 4.1 percent, indicating that with the right products and markets, we can continue to grow our exports. Moving forward, we should prioritize improving agriculture and fisheries, as well as expanding our exports. We have plans in place for both sectors, such as the National Agriculture and Fisheries Modernization and Industrialization Plan (NAFMIP 2021-2030) and the Philippine Export Development Plan (PEDP 2023-2028), but it is crucial that we implement these plans effectively.
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