Even the most pessimistic top market analysts and economists did not anticipate that the Philippines’ economic growth would decline to just 4.3 percent in the second quarter. This reality check serves as a wake-up call to the Marcos administration, highlighting the urgent need for substantive actions to restore the country’s economic growth.
According to the Philippine Statistics Authority (PSA), the country’s gross domestic product (GDP) experienced its slowest growth rate in over two years during the April to June quarter. This deceleration from the 7.5 percent growth recorded in the same period last year, and the 6.4 percent growth in the first quarter, was well below the average market consensus forecast of 6 percent.
The slowdown in economic growth was primarily attributed to decreased consumer spending, caused by high prices of basic goods and services and record-high interest rates. Additionally, lackluster government spending, especially following last year’s election-related spike, contributed to the loss of momentum.
Market analysts from Pantheon Macroeconomics referred to the second-quarter results as “a disaster,” prompting them to lower their full-year growth forecast for the Philippines from 5.5 percent to 4.5 percent. Other major market watchers, including BofA Securities, Citi, and Goldman Sachs, also revised their 2023 projections downwards, falling below the government’s target growth range of 6-7 percent.
BMI Country Risk & Industry Research stated that the economy would need to grow by at least 6.5 percent in the second half of the year to meet the lower end of the government’s set range. Unfortunately, the odds are stacked against the Philippines due to persistently high inflation, recent increases in petroleum prices, the threat of El Niño on agriculture prices, and the global economic slowdown, which has resulted in decreased export demand and restrained investment activity.
However, despite these challenges, the Marcos administration’s economic team remains optimistic and believes that the ambitious target of 6-7 percent GDP growth can still be achieved. They emphasize the need to accelerate the execution of programs and projects, along with the delivery of public services outlined in the 2023 national budget, to provide a much-needed boost to the economy.
The economic managers acknowledge the significant contraction in government expenditures during the second quarter, mainly due to the absence of election-related spending and underspending against the budget. The government missed its spending program for the first half of the year by 6.6 percent, which would have contributed to the timely completion of infrastructure projects and job creation.
The economic managers assure the public that government spending will accelerate in the coming quarters, allowing for the recovery of growth momentum. The decline in government spending had a severe impact on economic growth, as highlighted by Socioeconomic Planning Secretary Arsenio Balisacan, who mentioned that GDP growth in the second quarter could have reached 5.6 percent if there had been no underspending.
To regain growth momentum, the economic managers must prioritize hastening spending. The Department of Budget and Management plays a crucial role in ensuring national and local government units respond and contribute to achieving the 2023 target growth rate by effectively executing their programs for the remainder of the year.
Despite external headwinds that are beyond their control, the economic managers remain hopeful about growth prospects for the year. They recognize the levers within their reach and are committed to utilizing them to steer the economy back on track.
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