The Philippine economy expanded by a below-target 5.6 percent in 2023 as investments, household consumption and government spending slowed, Philippine Statistics Authority data showed on Wednesday.

The result — markedly down from 2022's 7.6 percent and below the government's target range of 6.0 to 7.0 percent for last year — was widely expected.

Fourth quarter growth was 5.6 percent, down from the previous quarter's upwardly revised 6.0 percent and the year-earlier 7.1 percent. It was slightly lower than the 5.7 percent median in a Manila Times poll of economists.

"While this growth is below our target ... it keeps us in the position of being one of the best-performing economies in Asia," Socioeconomic Planning Secretary Arsenio Balisacan said in a briefing.

Socioeconomic Planning Secretary Arsenio Balisacan. Photo from NEDA

In comparison to other countries that have reported fourth-quarter 2023 real gross domestic product (GDP) growth, the Philippines trailed Vietnam (6.7 percent) but outperformed China (5.2 percent) and Malaysia (3.4 percent).

Agriculture, industry and services — the main economic sectors — grew by 1.4 percent, 3.2 percent and 7.4 percent, respectively, in the last three months of 2023.

All three also posted positive full-year results: agriculture, 1.2 percent; industry, 3.6 percent; and services, 7.2 percent.

Broken down further, fourth quarter growth was driven by financial and insurance activities (up 11.8 percent), wholesale and retail trade, including the repair of motor vehicles (5.2 percent), and construction (8.5 percent).

For the full year, the top contributors were wholesale and retail trade (5.5 percent), financial and insurance activities (8.9 percent), and construction (8.8 percent).

Slowdowns

On the demand side, household consumption increased by 5.3 percent in the fourth quarter, and investments and imports also saw annual growth rates of 11.2 percent and 2.9 percent, respectively.

Government expenditures and exports, however, fell by 1.8 percent and 2.6 percent, respectively.

Household spending grew 5.6 percent for the full year, down from 8.3 percent in 2022. Total investments also went the same way, growing by a slower 5.4 percent from 13.8 percent a year earlier.

State spending, meanwhile, grew by just 0.4 percent from 4.9 percent, which Balisacan said was "mainly due to the fiscal consolidation program" and base effects given election spending and continued vaccination measures in 2022.

He also expressed concern over sluggish growth in food spending, attributed to high food prices, despite a recent moderation in inflation.

The full-year slowdown, Balisacan said, could be due to the impact of interest rate hikes ordered by the Bangko Sentral ng Pilipinas (BSP) to bring inflation under control.

"Its longer-term effects become noticeable a few quarters down the line. So, the slowdown we are currently observing may be the result of past increases in interest rates, particularly those implemented early last year and in 2022," he said.

The BSP's benchmark rate currently stands at 6.5 percent, the highest since 2007, after 450 basis points of rate hikes starting May 2022.

"When investors delay their investment because they are waiting for the interest rates to go down, the impact of that could have lag effects. Additionally, the effects of inflation are swift, affecting household consumption rapidly," Balisacan said.

Focus on inflation

Inflation hit a 14-year high of 8.7 percent in January but returned to target in December at 3.9 percent. The full-year average, however, still breached the BSP's 2.0- to 4.0-percent target at 6.0 percent.

The rate could spike later this year due to the impact of the El Niño weather pattern, and the BSP has said that interest rates would be kept unchanged until inflation settles firmly within target.

Despite domestic and external challenges, Finance Secretary Ralph Recto expressed confidence that this year's 6.5- to 7.5-percent target would be achieved.

"The government will continue pushing forward strategies to boost economic growth and ensure that the Philippines remains on track with its medium- to long-term goals," he said in a statement.

In particular, the government will be working to keep inflation under control to stimulate private spending.

"Ensuring that prices of goods remain stable and affordable is crucial to further grow the economy, consequently enabling us to boost revenue collection," Recto said.

The Inter-Agency Committee on Inflation and Market Outlook, led by Recto and Balisacan, is scheduled to meet on February 16 to coordinate actions to limit food and non-food inflation.

Q4 GDP understated

A ranking House lawmaker believes that the fourth quarter and full year Gross Domestic Product (GDP) figures were "understated" as the PSA did not account for several sectors, such as individuals who work from home with foreign employers.

The PSA reported that the country's fourth quarter GDP expanded to only 5.6 percent, down from the previous quarter's growth rate of 6 percent and 7.1 percent in the same quarter of the previous year.

It also brought the full-year 2023 growth rate to 5.6 percent, down from the 7.6 percent growth in 2022 and below the government's target range of 6-7 percent for last year.

In a statement, Albay 2nd District Rep. Jose Maria Clemente "Joey" Salceda said that the fourth quarter and full-year GDP figures point to a "robust private sector long-term investment, with gross fixed capital formation being at a very strong 8.1 percent."

He further said that the figures also come in the context of high food prices due to the ongoing conflict in Ukraine and Israel, as well as high interest rates from the US Federal Reserve, which had dampened global growth.

Further, Salceda said that government spending took a heavy toll from the election bans due to the Barangay and Sangguniang Kabataan elections, as well as the delay in the release of funds for key programs.

"Government spending grew at a disappointing 0.4 percent full year and shrunk by 1.8 percent in the fourth quarter," he said.

This slowness in government spending is the reason why House Bill 9513 should be passed, Salceda said, noting that it would use a broader range of sources for the release of unprogrammed funds.

"If we passed HB 9513 by then, we would have been able to do catch-up work faster. Fortunately, similar provisions are now integrated into the 2024 General Appropriations Act. So, economic performance for 2024 should be better," Salceda said.

He also expects that rice prices will stabilize by May or June 2024, when political pressure in India to boost buffer stocks will have eased after their federal elections, which will strengthen household consumption, which had been moderately high at 5.6 in 2023.

"All in all, the efforts to boost investment are working despite global headwinds, but to support expansionary government spending, we need strong tax and non-tax revenue growth, as well as faster releases of programmed and unprogrammed appropriations," Salceda said.