PH economy grows 6.4% in first quarter

The Philippine economy grew 6.4 percent year-on-year in the first quarter, within the government’s target range of 6 percent to 7 percent for the year, the Philippine Statistics Authority said.

National Economic and Development Authority Secretary Aresenio Balisacan said among major emerging economies in the region that released their first-quarter growth so far, the Philippines grew the fastest, followed by Indonesia (5.0%), China (4.5%), and Vietnam (3.3%). The country’s growth is also more rapid than the forecasted first quarter growth rates for Malaysia (4.9%), India (4.6%), and Thailand (2.8%).  

“While this quarter’s growth figure is lower than the 8.0% year-on-year growth rate recorded in the first quarter of 2022, we need to exercise caution in interpreting this as a slowdown since the previous year’s growth came from a low base,” Balisacan said.

He said the economy is normalizing its previous trend and that the better-than-expected first-quarter performance implies that the economy is returning to its high-growth trajectory despite the various challenges and headwinds.

On the demand side, gross fixed capital formation or investment expanded at a rapid pace of 10.4% year-on-year, faster than household final consumption expenditure (6.3%) and government final consumption expenditure (6.2%), reflecting a robust public construction performance primarily driven by the road infrastructure and railway projects of the Department of Public Works and Highways and the Department of Transportation.

However, exports of goods and services only increased by 0.4% in the face of weak global demand, while imports of goods and services rose by 4.2%. 

On the supply side, all major economic sectors recorded positive growth this quarter. Agriculture grew by 2.2%, industry grew by 3.9%, and services saw a significant increase of 8.4% with the full resumption of economic activity.

Agriculture’s performance in the first quarter – primarily due to favorable weather conditions – is a promising beginning to 2023, especially given the expected challenge of El Niño later in the year.

“The performance of these sectors translates into the latest labor force statistics, showing improvements not only in terms of a lower unemployment rate, from 5.8% in March 2022 to 4.7% in March 2023, but also in terms of a lower underemployment rate – notably, the invisible underemployment rate, which declined from 5.6% in March 2022 to 3.5% in March 2023,” said Balisacan.

The sectors of transportation and storage; accommodation and food service activities; wholesale and retail trade; and construction are among those with the highest year-on-year increases in employment in March 2023, indicating that strong pent-up demand persisted in the first quarter of this year. 

“Despite this rather auspicious beginning for 2023, we, in the Economic Team and the whole government, have to remain vigilant. While we remain focused on implementing our social and economic transformation agenda, we also stand ready to respond to the shocks and risks to our growth outlook – both domestic and external, foreseen and unforeseen,” the NEDA chief said.

“High inflation remains a challenge, and the Bangko Sentral ng Pilipinas’ move to raise its key policy rates to anchor inflation expectations and ensure price stability, may dampen future growth. But the improvement in business climate can counter this unintended effect,” he said.

The headline inflation rate appears to have reached its highest point, decelerating to 6.6% in April 2023 from 7.6% in March and 8.6% in February 2023. “We anticipate this downward trend to continue as inflation eventually eases toward the government’s target range by the fourth quarter of 2023. Indeed, the latest inflation report numbers look promising: food inflation declined from 9.5% in March to 8.0% in April 2023, while non-food inflation declined from 6.3% in March 2023 to 5.5% in April,” he said.

Balisacan said ensuring that the country not only go back to its high-growth path but, more importantly, achieve significant social and economic transformation by the end of this administration’s watch, involves fully implementing the strategies laid out in the Philippine Development Plan 2023-2028.

The strategies call for developing and protecting the capabilities of Filipinos and transforming our production sectors to generate more quality jobs and competitive products while ensuring a conducive overall investment environment in terms of governance and government policies. 

“In developing and protecting the capabilities of Filipinos and enhancing the prospects for sustained growth, it is crucial to address the rising costs of food and energy, especially since these disproportionately adversely affect the welfare of low-income and vulnerable individuals, as food items tend to dominate their consumption patterns,” he said.

London-based think tank Oxford Economics said the first-quarter growth was led by private consumption and investment, but dragged down by external demand.

“We expect weaker global growth will continue to weigh on the Philippines' exports. Resilient domestic demand will in part offset this, but past rate hikes will take effect with a lag, and we look for overall growth to remain below trend this year and next,” it said.

Household spending grew at a robust pace of 6.3% y/y, from 7% previously, despite rising inflation during the quarter. Consumption growth in service-related sectors such as recreation and restaurants outpaced others as they recovered from the pandemic loss.

Investment was another bright spot, as construction picked up after lagging other types of investment. Private construction growth of 20.6% y/y outpaced the headline growth of 10.4% y/y. Government consumption also picked up to 6.2% y/y from 3.3% in Q4 2022.

Exports remained the main drag during the quarter, as total exports growth slowed to 0.4% y/y from 14.6% in Q4 2022. While service exports remained robust amid the recovery in the tourism sector, goods exports contracted by 15.3% y/y, recording the biggest drop since Q2 2009 excluding the pandemic period. Imports growth slowed to 4.2% y/y from 7% previously, primarily dragged down by a slowdown in services imports.

“We expect the external sector will continue to weigh on headline growth, particularly on the goods side. While March trade figure showed a pickup, we think this is a temporary blip related to China's reopening. Indeed, April trade data from China shows a normalization in imports from the Philippines,” it said.

Oxford Economics said lower global growth would drag on the goods exports and any substantial upturn in the IT cycle is unlikely this year.

Resilient domestic sector should provide some support, but we don’t think it will be able to fully offset the external headwinds. Therefore, while today's figure warrants an upgrade to our 2023 growth forecast, short-term growth will remain below its pre-pandemic trend,” it said.