MANILA, Philippines — The Philippine economy in the first quarter expanded at its slowest pace in two years as high prices dampened consumption.
In a briefing yesterday, Philippine Statistics Authority head Dennis Mapa said the country’s gross domestic product (GDP) growth for the first quarter was at 6.4 percent.
This is the slowest growth posted since the 3.8 percent contraction in the first three months of 2021.
The first quarter GDP result is also slower than the eight percent expansion in the first quarter last year, and 7.1 percent growth in the previous quarter.
National Economic and Development Authority Secretary Arsenio Balisacan said the first quarter GDP growth, however, is higher than the median estimates of analysts and well within the government’s six to seven percent target for this year.
“Moreover, among major emerging economies in the region that have released their first quarter 2023 real GDP growth so far, the Philippines grew the fastest, followed by Indonesia (five percent), China (4.5 percent), and Vietnam (3.3 percent),” he said.
Despite the slower GDP growth in the first quarter, he said the economy is normalizing its previous trend.
“The better-than-expected first-quarter performance this year implies that we are returning to our high-growth trajectory despite the various challenges and headwinds we have faced,” he said.
All the major economic sectors posted positive growth in the first quarter with agriculture, forestry and fishing rising by 2.2 percent; industry by 3.9 percent; and services by 8.4 percent.
Balisacan said the slower growth in the first quarter was partly due to the impact of high inflation.
“One cannot discount the slowdown we have seen in the first quarter is the effect of high inflation,” he said.
He said high inflation can affect the economy in many ways including reducing consumer demand.
Household final consumption expenditure rose by 6.3 percent in the first quarter, slower than the 10 percent growth posted in the first quarter last year.
“On the supply side, high inflation can reduce investments in various sectors in the economy because of the expectations demand will be lower and costs will be higher,” Balisacan said.
Inflation averaged 8.3 percent in the January to March period, above the central bank’s two to four percent target for the year.
Balisacan said the country’s inflation rate appears to have peaked, as it slid to 6.6 percent in April from 7.6 percent in March, and 8.6 percent in February.
“We anticipate this downward trend to continue as inflation eventually eases toward the government’s target range by the fourth quarter of 2023,” he said.
He said high inflation, however, remains a challenge and the move of the Bangko Sentral ng Pilipinas (BSP) to hike key policy rates to rein in inflation may dampen future growth.
The BSP is set to hold its next rate-setting meeting on May 18.
Since May last year, the BSP has raised key policy rates by a total of 425 basis points, bringing the overnight reverse repurchase rate to 6.25 percent.
Aside from inflation, Balisacan said other risks to growth are El Niño and animal diseases that could affect the agriculture sector, impact of the Ukraine-Russia war, and geopolitical tensions in South China Sea and Taiwan.
“Despite various risks and challenges, the economic outlook for the Philippines in the near and medium term remains solid. We are confident that we will reach our target for this year of six to seven percent growth rate, and 6.5 to eight percent for 2024 to 2028,” he said.
Commenting on the latest GDP data, Rizal Commercial Banking Corp. chief economist Michael Ricafort said the country’s economic growth could average 5.5 to 6.5 percent this year, as the lower base effects gradually normalize, consistent with the average growth of at least six percent before the pandemic.
“The expected easing trend in year-on-year inflation for the coming months to about five to six percent from May to June 2023; four percent levels from July to September 2023 and three percent levels from October to December 2023; thereby could fundamentally support faster GDP or economic growth going forward amid reduced drag from inflationary pressures,” he said.
He said a possible cut in US and local policy rates for the coming months would help bring down borrowing costs, and in turn, support faster economic growth.