The Philippine economy has posted a higher gross domestic product (GDP) growth of 5.9 percent in the third quarter (Q3) of 2023, the strongest among major economies in Asia.
The Q3 GDP performance was faster than the 4.3 percent growth in Q2 2023 and exceeded the expectations of private analysts with a median forecast of 4.9 percent.
The Philippines’ GDP growth outturn in Q3 also outpaced major economies in Asia that have released their data for the period such as Vietnam (5.3 percent), Indonesia and China (4.9 percent), Malaysia (3.3), and Singapore (0.7 percent).
“This strong performance is buoyed by robust domestic demand despite high inflation, improved government spending, and a better global growth outlook,” Finance Secretary Benjamin E. Diokno said.
Year-to-date, the country’s GDP growth stood at 5.5 percent, exceeding that of China (5.2 percent), Indonesia (5.1 percent), Vietnam (4.2 percent), Malaysia (3.9 percent), and Singapore (0.5 percent).
“We are confident that the country will post a full-year economic growth that is close to the low-end of the DBCC’s [Development Budget Coordination Committee] growth assumptions of 6.0 to 7.0 percent for 2023 as inflation eases, labor market conditions remain strong, and consumer spending increases, particularly during the holiday season,” Secretary Diokno said.
The Philippine economy has to grow by at least 7.2 percent in Q4 to achieve the low end of the DBCC’s growth assumption of 6.0 to 7.0 percent for 2023.
Domestic demand in Q3 2023 grew by 3.9 percent from 8.9 percent in the same period last year driven by the continuous increase of household consumption and the rebound in government spending at 5.0 percent and 6.7 percent, respectively.
All major production sectors posted positive year-on-year (YoY) growths in Q3 and the first three quarters of 2023, reflecting continued broad-based economic expansion.
The services and industry sectors expanded by 6.8 percent and 5.5 percent, respectively in Q3 2023, although both are slower than respective growth rates of 9.3 percent and 5.8 percent a year ago.
Agriculture grew moderately by 0.9 percent, from 2.1 percent growth in Q3 2022.
The major contributors to Q3 2023 GDP growth were wholesale and retail trade, financial and insurance activities, and construction.
By major sectors, the services sector’s wholesale and retail trade contributed 1.1 percentage points (ppt) to real GDP growth, while financial and insurance activities contributed 1.0 ppt.
From the industry sector, construction contributed 0.9 ppt and manufacturing and utilities both contributed 0.3 ppt.
Under the agriculture sector, agricultural support activities and corn contributed 0.05 ppt and 0.03 ppt, respectively.
The rebound in government consumption contributed 1.0 ppt as it expanded by 6.7 percent YoY, faster than 0.7 percent in Q3 2022 and an acceleration from the 7.1 percent YoY contraction in the previous quarter.
Based on seasonally adjusted data, government consumption jumped by 8.1 percent from a 5.4 percent contraction in the previous quarter, reflecting the intensified implementation of the national government agencies’ catch-up plans in Q3 2023.
However, total investments or gross capital formation had a slightly negative contribution (-0.4 ppt) as it declined by 1.6 percent, mainly due to drawdowns in inventories for the second consecutive quarter. Nevertheless, construction posted a double-digit growth of 12.4 percent driven by public and household construction.
The lower negative net exports, which is equivalent to a 12.9 percent YoY improvement, resulted in a positive 1.4 ppts contribution to GDP growth in Q3 2023. This was driven by the 11.7 percent growth in service exports largely from travel services, reflecting the improving tourism condition in the country.
However, imports of goods and services contracted by 1.3 percent mainly due to imports of semiconductors (-1.1 ppt) and electronic data processing (-0.4 ppt) that contributed negatively to growth.
Economic outlook and policy responses
Growth in Q4 2023 will be supported by the continued acceleration of government spending and the rebound in manufacturing activities given the improved global economic outlook for the year.
As inflation eases and continues to decelerate for the rest of the year, the government expects this to help domestic demand propel the economy closer to the low end of the growth target.
The government, through the Inter-Agency Committee on Inflation and Market Outlook (IAC-IMO), continues to monitor developments in food and non-food inflation that need to be addressed and is implementing a package of comprehensive measures to effectively mitigate inflation across several fronts.
Labor market conditions also remained robust and continue to pose good prospects for the economy. The continued decline of the unemployment rate and the improvement in the quality of jobs will help drive economic growth.
National government expenditure is expected to further improve in the last quarter of 2023 as the government continues to accelerate the implementation of programs and projects, particularly on infrastructure.
Meanwhile, the better-than-expected global economic growth in the first half of the year and the improved global economic outlook will help boost the growth of the country’s manufacturing and export sectors.
The agenda outlined in the Medium-Term Fiscal Framework (MTFF) and the Philippine Development Plan (PDP) 2023-2028, along with the economic liberalization reforms aimed at intensifying investment promotions, particularly the Public-Private Partnership (PPP) Act, will also drive continued robust economic growth and investments in the country.
“The improving outlook for inflation, strong fiscal position, sound external conditions, and robust labor market, among other positive indicators, should pave the way for the expansion of activities of businesses, households, and the rest of the private sector,” Secretary Diokno said.