Philippine GDP

[ANALYSIS] GDP growth ‘rising,’ ‘outstanding’? It’s at its lowest in nearly 2 years

JC Punongbayan

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[ANALYSIS] GDP growth ‘rising,’ ‘outstanding’? It’s at its lowest in nearly 2 years

Marian Hukom

In 2023, the crutches will be gone. It's now up to the Marcos administration how it would boost growth, and when.

On May 11, the Philippine Statistics Authority came out with its latest report on the Philippine economy’s production for the first quarter of 2023. Total output, as measured by GDP or gross domestic product, grew by 6.4%.

It’s the lowest GDP growth rate in the past 7 quarters, or in nearly 2 years.

Yet President Ferdinand Marcos Jr. and some of his economic managers took turns hyping this figure.

The President said in Filipino, “Our goal is to have a strong economy that creates jobs and opportunities for businesses and investments. We are slowly achieving this while the GDP growth rate continues to increase, and it’s now at 6.4% in the first quarter of the year.”

This is a lie. GDP growth rate has plainly dropped. What a spin!

Meanwhile, Socioeconomic Planning Secretary Arsenio Balisacan offered a more nuanced view. He said, “While this quarter’s figure is lower than last year’s 8%, we need to exercise caution in interpreting this as a slowdown since [the] previous year’s growth came from a low base. The economy is normalizing its previous trend… We are returning to our high growth trajectory.”

For her part, Budget Secretary Amenah Pangandaman called the 6.4% growth rate “outstanding.” She echoed Secretary Balisacan and added that it “indicates that the Philippines is returning to its high growth trajectory.”

Except it doesn’t.

In fact, a 6.4% growth – even if on par with the pre-pandemic growth rates – is low compared to what we need to get back on track. If we’re happy with a 6% or even 7% growth, our economy will be stuck at a low trajectory and will never be able to get back to its pre-pandemic path.

I’ll show you why. Look at Figure 1. The blue line shows our historical GDP, which grew by an average yearly rate of 6.54% from 2014 to 2019. This is the “high growth” that the economic managers are referring to.

The yellow line shows what our GDP could look like without the pandemic, and if we kept growing at 6.54% yearly. Note that from 2020 to 2022, we deviated from this promising growth path. The task now is to rev up the economy so that we can return to its old trajectory (yellow line) as soon as possible.

Figure 1.

This is a demanding task, to say the least.

The green line shows that for the economy to converge to its old high-growth path by 2028 (the end of the Marcos Jr. administration), our economy ought to be growing at a whopping 9.4% yearly – from 2022 all the way to 2028. Any growth less than that means that we will never converge to our old trajectory by 2028.

In 2022, the economy grew by 7.6%. Impressive as that may seem, it won’t be nearly enough for us to go back to our trajectory by 2028. In fact, with that growth, we will never be able to go back to our previous trajectory. Whatever GDP we can gain from a 7.6% yearly growth will always fall short of what we could have achieved with our old trajectory.

What all this means is that if we settle for seemingly high growth of 6% or even 7%, that won’t “return to our high growth trajectory,” as the economic managers claim we are already doing. Unless growth picks up in earnest, the pandemic would have pulled down our economy’s trajectory permanently.

Why is growth lower?

What could be the reasons for the growth slowdown?

One major reason is the slowdown of private households’ spending. Its contribution to GDP growth has been declining since the third quarter of 2022. And the main reason for this is the drastic reduction of spending on food (Figure 2).

This is hardly surprising given the acceleration of prices last year. In January 2023, inflation peaked at 8.7%, the highest in 14 years. Thankfully, inflation has since gone down.

Still, the average inflation rate for the first quarter of 2023 was 8.3%, which is more than double the government’s upper target of 4%. When prices are rising that fast, consumers think twice before spending, and this likely accounts for the slowdown of households’ spending in the GDP report.

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Despite a lower spending on food, restaurant and hotel services, as well as transportation, are the two biggest contributors to spending growth. But that’s also hardly surprising, since these sectors were hit the most by the pandemic lockdowns, and are only recovering just now, propped up by “pent-up demand.” People are more than happy to spend for vacations, for example, to make up for lost time during the lockdowns.

By the way, investments are also still 23% lower than in the last quarter of 2019, or before the start of the pandemic. This, despite the trillions of investment pledges that the President supposedly got from his frequent travels (the operative word here is “pledges”).

Figure 2.

From the perspective of sectors, the contribution of services (particularly wholesale and retail trade) also declined in the first quarter (Figure 3). This is important since services account for 61% of GDP, and wholesale and retail trade account for easily 26% of total services.

Figure 3.
In the industrial sector, meanwhile, there have been distinct slowdowns of growth in manufacturing and construction (Figure 4).

Figure 4.

No more crutches

This year the Marcos Jr. administration is aiming for a GDP growth to fall between 6% and 7%.

That’s entirely possible. But we should brace for headwinds like El Niño (which imperils agriculture and food manufacturing) as well as the impact of the Bangko Sentral’s interest rate hikes since last year (those higher rates are likely to slow down borrowing, even if the effects are delayed).

More importantly, even if we achieve the higher target of 7% growth, that won’t be enough for us to go back to our pre-pandemic trajectory.

In 2021 and 2022, the government got lucky in reporting high growth rates (in the second quarter of 2021, for example, the previous Duterte government was happy to report a 12% GDP growth). But we were coming from the country’s deepest recession since Martial Law, so such high growth rates were artificially high.

In 2023, the crutches will be gone. We’re back to “normal” growth rates. It’s now up to the Marcos administration how it would boost growth, and when. –

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. He has once again helped those people with open and critical minds realized how the Marcos Jr.’s administration hypes are deceiving the people.

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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.