Metro Manila (CNN Philippines, August 10) — The Philippine economy felt the punch of high inflation and heftier interest rates, with authorities recording sluggish growth in the second quarter of 2023.
In a news briefing on Thursday, National Statistician Dennis Mapa said the local economy grew at a slower pace of 4.3%, much weaker than the 6.4% a quarter prior and the 7.5% growth recorded in the same period last year.
Excluding the contraction during the pandemic, Mapa said the last time the Philippine economy posted a quarterly growth rate of “below or at 4% level” was in 2011.
The latest figure is also below the 6.34% average forecast in a CNN Philippines poll of 11 economists, with some of them attributing the possible slowdown to waning “revenge” spending.
READ: PH economy’s growth weaker in Q2 on waning ‘revenge’ spending – poll
Mapa said the services sector had the biggest contribution to the economy. Other main contributors include wholesale and retail trade; repair of motor vehicles and motorcycles; financial and insurance activities; and transportation and storage.
National Economic and Development Authority (NEDA) Secretary Arsenio Balisacan, who was also present at the briefing, described the expansion as “moderate.”
Asked about the factors that dampened the growth, Balisacan attributed this to the lag effects of the interest rate hikes imposed in 2022 and early this year, which monetary authorities earlier said were necessary to tame soaring commodity prices.
For consumers and businesses, the increase in interest rate hikes equates to more expensive loans. This move would prompt the public to save more and spend less, subsequently lowering the demand in the market.
“The lag effects of an uptick in interest rates last year and early this year, we are feeling that now, especially sa investments and household durable goods,” the NEDA executive said.
Other factors that contributed to the slowdown were the underspending of the government and the absence of election-related spending, which helped boost last year’s economic activities.
Despite this development, the official kept his optimism about the Philippines hitting the target growth of 6% to 7% this year, banking on improvements in employment, tourism, investment registration activities, and the return of face-to-face classes.
Balisacan said the economy needs to grow “at least 6.6%” in the second semester to achieve the target.
“Notwithstanding the challenges, we believe this is still attainable,” he said.
He said that as the inflation cools, the pressure for the central bank to increase interest rates would likewise be eased. Balisacan also said the government must accelerate its spending on programs and projects.
On threats to the government meeting its target, Balisacan noted external factor “remains a concern.”
“Some major economies are not seeing major improvements in business sentiments,” he said.
On the local space, the NEDA official said the Philippines still has to deal with eight to 11 typhoons in 2023. The wrath of recent typhoons was seen in some sectors, particularly agriculture.
“Overall, the risks are there and we can’t completely eliminate them but we can reduce their impacts, especially for those we can control, like inflation,” he said.
“We are better equipped and more resilient to withstand the various risks and challenges on both the external and domestic fronts,” he added.
Reacting to the second-quarter growth, Rizal Commercial Banking Corporation chief economist Michael Ricafort said it was the slowest since the first quarter of 2021.
He also believes the latest figure could “mathematically be the slowest for 2023” due to a higher base after the national elections in May 2022.
“For the coming quarters of 2023, GDP growth could normalize more sustainably at the 5%-6% levels, in view of the continued normalization of GDP base/denominator effects (i.e. diminishing low base effects) with no more large lockdowns since 2022 and as the economy reopened further towards greater normalcy since 2H (second half) 2022,” Ricafort said.
