Philippine economy

[ANALYSIS] After a year under Marcos, is PH economy grinding to a halt?

JC Punongbayan

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[ANALYSIS] After a year under Marcos, is PH economy grinding to a halt?
One obvious culprit – acknowledged by the Marcos technocrats – is the sky-high inflation rates we’ve seen since last year. Rising inflation means prices are not just rising – they’re accelerating.

The latest GDP (gross domestic product) report of the government for April to June 2023 reveals the true, sorry state of the economy under President Ferdinand Marcos Jr.

Let’s parse the data.

For the second quarter of 2023, total output grew by a measly 4.3%. This is unsettlingly low for several reasons.

First, this is the lowest GDP growth since the first quarter of 2021, when the pandemic was just a year old.

Worse, if you discount the pandemic recession, this is in fact the slowest expansion of the economy since the fourth quarter of 2011, or almost 12 years ago, when GDP growth clocked in at just 4%.

That is, we’ve gotten so used to growth of about 6% that 4% in supposedly “normal” times is just too low.

Figure 1.

Second, 4.3% growth is much lower than the median 6% forecast of analysts as published by BusinessWorld.

The analysts simply didn’t see this one coming. In fact, as business journalist David Ingles tweeted (or posted) on X, not counting the pandemic recession in 2020, this is the biggest gap between analysts’ median forecast and the actual GDP growth figure since 2008.

Third, 4.3% growth brings average growth for the first half of 2023 to just 5.35%. That’s lower than the 6-7% target of the Marcos administration for this year. To reach such target by December, the economy will need to grow by 6.65% from July to December. The way things are going, that’s a tall order.

Fourth, 4.3% is too far below the 9.4% growth that we “need” every year until 2028 just to return to the economy’s pre-pandemic trajectory.

Figure 2 shows that if we just settle for 7.6% yearly (that’s the growth rate in 2022, the fastest growth in 46 years as boasted by Marcos in his State of the Nation Address or SONA), our economy will still be on a permanently lower trajectory than the pre-pandemic trend.

Guess what. With a puny 4.3% growth, we’ll deviate even more from the ideal path.

Figure 2.

Fifth, one might even say that the economy is shrinking. The 4.3% figure denotes growth only because we’re comparing output in the second quarter of 2023 to the same period in 2022.

But if you compare output to the first quarter of 2023, or the immediate period before, output actually dropped by 0.91% (Figure 3). That means shrinkage, not growth.

Outside of the pandemic recession, this is the first contraction of GDP (on a quarter-on-quarter basis) since the first quarter of 2009. Yikes.

Figure 3.

Anemic spending across the board

Why is growth so slow?

First, let’s look at the components of GDP. One meaning of GDP is that it’s total spending in the economy.

Figure 4 shows that in normal times, consumption by private households contributes the most to spending (think of malls, restaurants, etc.). But note that consumption’s contribution (denoted by the green bars) has been steadily dropping since 2022.

Figure 4.

If you zoom in on consumption growth, you see a dire picture (Figure 5). Food spending has historically been the biggest contributor. But since early 2022, food’s contribution has progressively declined, so much so that by 2023 it essentially vanished. Now food’s barely contributing anything to consumption growth.

This is alarming news for a traditionally consumption-driven economy.

Figure 5.

One obvious culprit – acknowledged by the Marcos technocrats – is the sky-high inflation rates we’ve seen since last year, peaking at 8.7% in January 2023. Rising inflation means prices are not just rising – they’re accelerating.

People are naturally thinking twice before they spend on restaurant meals, food deliveries, and the like. Worse, many people may be skipping meals because food has become unaffordable. What ensues is slower food spending; worse, hunger.

Notice as well that spending on clothing, furniture, and alcoholic drinks all pulled down consumption growth. People are scrimping across many consumption categories, except on transportation spending. This may be because of people’s travels during the summer of 2023, the first proper summer after COVID restrictions (e.g., masking requirements) were fully lifted.

The picture is worse if you look at spending compared to the first quarter of 2023 (January to March). Spending on all consumption categories (food, alcohol, clothing, furniture, health, transportation, recreation, restaurants, and miscellaneous goods and services) has shrunk. The only items where people spent more are housing, communication, and education.

Go back to Figure 4. Another important factor for slower consumption growth is the negligible (in fact slightly negative) contribution of investments from the private sector. Poof. It’s all but gone.

What happened? I thought we’re a more attractive investment destination now?

One possible reason – acknowledged as well by Marcos’ economic managers – is the steep rise of interest rates since last year. This is a deliberate policy of the Bangko Sentral ng Pilipinas to fight inflation. Higher interest rates make it less attractive for borrowers to take out loans, and this may be discouraging investments as well as overall demand.

While higher interest rates fight inflation (with a lag), they also dampen borrowing and spending. This is the usual trade-off in textbook macroeconomics.

A major victim seems to be construction spending: its contribution to investment growth has all but vanished in the second quarter (Figure 6). Either new projects have been halted, or ongoing ones have been put on hold.

Figure 6.

Go back again to Figure 4. Another data point that stands out is the negative (yes, negative) contribution of government spending to growth. Simply put, the government has spent less compared to the same period last year.

On the one hand, this is puzzling. Isn’t government supposed to be ramping up spending to boost the post-pandemic economy? Apparently, it’s been remiss on that score.

The government admits this, too. National Economic and Development Authority Secretary Arsenio Balisacan, in the press conference for the latest GDP figures, said: “Government agencies, including local and regional government entities, are encouraged, if not instructed, to formulate catch-up plans, accelerate, and even frontload the implementation of said programs and projects.”

But we must ask: Has the Marcos government fixed long-standing barriers to spending, such as the perennial lack of absorptive capacity in agencies tasked to implement big-ticket projects like infrastructure? If not, then government spending will continue to flag – despite Marcos’ “Build Better More” promises.

Go back to Figure 4 one last time. The final piece of the puzzle here is the positive contribution of net exports (exports less imports) to growth.

One would think that this is a good thing if we’re exporting more than we’re importing. But in fact, importing a lot can be good (if not necessary) for a country like ours that can’t produce many raw materials and equipment that are essential for future growth and productivity.

An April 2023 Bangko Sentral study by Charles Marquez, Marcus San Pedro, and JC Armas even went on to confirm using causal analysis that in the Philippines “imports have a positive and significant impact on potential output growth, but exports do not.” They added that “the productivity-enhancing impact of imports is partly due to technological transfers embodied in capital goods imports from developed countries.”

Data show that import growth plummeted from almost 35% in the second quarter of 2021 down to a mere 2.5% in the second quarter of 2023. Such slow growth of imports doesn’t bode well for future growth.

To sum, in the second quarter of 2023, spending has become anemic across the economy. In fact, compared to January to March 2023, spending shrank across the board, except for exports (Figure 7).

It’s very rare for nearly all spending categories to shrink in the same quarter. This is, in fact, a historical outlier, one that betrays a much weaker Philippine economy under Marcos – certainly much weaker than what he and his economic managers are letting on.

Figure 7.

The sectors are shrinking

Another interpretation of GDP is that it’s the sum total of production across the major sectors in the economy (agriculture, industry, services).

Still the biggest contributor among the three is the services sector, followed by industry and agriculture (Figure 8). But the picture is also unpleasant here: growth is slowing down across all these sectors.

Figure 8.

In services, there’s a marked drop of the contribution of trade. There’s even one category that contributed negatively to growth: public administration and defense – government, again. Why is government production shrinking?

When it comes to industry, the contribution of manufacturing is also diminishing rapidly.

And as for agriculture, it’s no surprise that it hardly contributed anything to growth (that’s been the case for the past several years now). But the hardest hit subsector here was fishing. There’s also a huge decline in the contribution of palay production ­– a portent of things to come, given the burgeoning rice crisis abroad.

At any rate, Figure 9 shows that all three major sectors shrank from the early part of this year. All their growth rates were negative in the second quarter.

Figure 9.

Again, this is very weird and worrisome to see in “normal” times, especially now that the state of the nation is supposedly “sound and improving” – to use the President’s words in his latest SONA. The truth is, the state of the economy is objectively unsound, deteriorating, and much cause for concern.

The economic managers seem to be concerned, too. In the government’s press conference, Secretary Balisacan tried to allay concerns by saying the economic stagnation is a “short-run phenomenon” and we expect “remedial” measures (note the choice of words) to kick in and improve growth in the second half of 2023. Only time will tell, I’m afraid.

Questions moving forward

Over the past year, Marcos and his economic team have traveled far and wide to pitch (almost desperately) the Philippines as an attractive investment destination. Sometimes, if you listen to them, we appear like we’re an economic miracle.

But all the latest growth figures are saying otherwise. Moving forward, we ask:

  • First, will Marcos finally stop sugarcoating the situation and pay more attention to the growing cracks across the edifice that is our economy?
  • Second, exactly what will he do to promote consumption and boost services, industry, and agriculture (supposedly his turf)?
  • Third, will the BSP finally reduce interest rates now that their own interest rate hikes seem to be kicking in and tempering economic activity?
  • Fourth, given the stark slowdown of growth, does Marcos (and his economic team) still think this is the best time to pursue the Maharlika Investment Fund, which they’ve been pitching as an economic panacea? Or will they finally see it for what it is: a potential major threat to an already anemic economy?

JC Punongbayan, PhD is an assistant professor at the UP School of Economics and the author of False Nostalgia: The Marcos “Golden Age” Myths and How to Debunk Them. JC’s views are independent of his affiliations. Follow him on Twitter (@jcpunongbayan) and Usapang Econ Podcast.

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  1. ET

    Thanks to Prof. JC Punongbayan for another very enlightening economic article. If ever he will allow me to answer his last four questions, here is my attempt: 1) “sugarcoating” will never ever stop – this is the principle of the Marcos Disinformation Machinery; 2) boosting sectors: a) consumption – more Kadiwa stores and more parties at the Palace, b-c) services and industry – via MIF and d) agriculture – more importations; 3) on interest rates – will more likely remain as they are; 4) Maharlika Investment Fund will continue (nobody can stop the primary Corruption program of this administration).

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JC Punongbayan

Jan Carlo “JC” Punongbayan, PhD is an assistant professor at the University of the Philippines School of Economics (UPSE). His professional experience includes the Securities and Exchange Commission, the World Bank Office in Manila, the Far Eastern University Public Policy Center, and the National Economic and Development Authority. JC writes a weekly economics column for He is also co-founder of and co-host of Usapang Econ Podcast.