Hardly a Dent in PHL Growth Despite Inflation

The high inflation rate at the start of the year failed to greatly curb consumer spending. Filipinos continue to spend and travel more in the first three months of 2023, while business establishments are gaining more and more confidence as the Philippines transitions to the full new normal.

The solid economic growth numbers we posted in the first quarter does not surprise me. The resumption of face-to-face classes toward the end of 2022, revenge travel, increased traffic and the big crowds milling in shopping malls and dining in fast-food restaurants are an affirmation of a healthy economy. Add the declining unemployment rate to the mix and we can say that it is business as usual in this nation.

The Philippine economy expanded 6.4 percent in the first quarter, which is definitely slower than the 8 percent a year ago and 7.1 percent a quarter ago largely because of base effect and partly due to the impact of higher prices on consumer spending. Private economists had expected the GDP to grow slower at 6.2 percent.

The slower rise in the gross domestic product to me, however, is not something to sneer at. The Philippine GDP growth in the first three months of the year is the fastest in this part of the world. Indonesia’s economy grew 5 percent, China’s GDP expanded 4.5 percent while that of Vietnam was registered at 3.3 percent. The Philippine economic expansion, per the report of Economic Planning Secretary Arsenio Balisacan, was faster than the first-quarter projected rates for Malaysia at 4.9 percent, India at 4.6 percent and Thailand at 2.8 percent.  

I view the 6.4-percent economic expansion in the first quarter as part of the normal growth pattern prior to the pandemic years. The economy swung wildly at the start of the pandemic, contracting 9.5 percent in 2020 before growing 5.7 percent and 7.6 percent in 2021 and 2022, respectively. With the Covid-19 pandemic virtually over, we may see a more stable economic growth pattern in the succeeding years.

The first-quarter growth this year, meanwhile, appears to be more encouraging this time mainly because of the better performance of the agriculture, forestry and fishing sector. A laggard in the previous quarters, agriculture expanded 2.2 percent. The industry and services sectors also registered growth rates of 3.9 percent and 8.4 percent, respectively.

On the demand side, the household final consumption expenditure, or the expenses incurred by households on goods or services, rose 6.3 percent in the first quarter of 2023, albeit down from 10 percent in the same period last year. Consumers may have hesitated to spend more in the first three months, but they appear to have kept their confidence on the economy despite the high inflation rate at the start of the year.

Inflation rose to a 14-year high of 8.7 percent in January after surpassing the government’s target range last year. But prices eased to 8.6 percent in February, 7.6 percent in March and 6.6 percent in April—a clear trend that the worst is over for our hard-pressed consumers. Food inflation dropped from 9.5 percent in March to 8 percent in April 2023, while non-food inflation decreased from 6.3 percent in March to 5.5 percent in April.

I personally believe that as we lick the inflation menace further in the coming months, consumer confidence and household spending will rise.

The unemployment rate in March, for one, dropped to 4.7 percent from 5.8 percent a year ago and 4.8 percent in February. The lower figure translated into 2.42 million jobless Filipinos out of 51 million who were in the labor force during the period, per the latest report of the Philippine Statistics Authority.

The country’s employment rate in March rose to 95.3 percent from 94.2 percent in the same month last year and 95.2 percent in the previous month. In other words, the number of employed persons in March was estimated at 48.58 million, or an increase of 1.61 million from the 46.98 million employed persons in March last year.

The additional workforce will raise consumer spending in the following months and boost the overall Philippine economy. We have stayed the course at the height of the pandemic. There is no reason why we cannot step on the gas with Covid-19 now behind us and with a government that is pursuing business-friendly policies.