THE Philippines has felt the pinch of recession fears and high inflation as the lackluster performance of manufacturing and exports, which are “sensitive to the global environment,” seeped into the country’s economic performance in the first three months of the year.
On Thursday, the Philippine Statistics Authority (PSA) announced that the country posted a GDP growth of 6.4 percent in the first quarter of 2023. This was the slowest in eight quarters. (Story here: https://businessmirror.com.ph/2023/05/11/phl-economy-posts-q1-growth-of-6-4-lowest-in-8-quarters/)
Data showed that manufacturing only posted growth of 2 percent, one of the slowest growth rates under the Industry subsectors of GDP. Exports, National Statistician Claire Dennis S. Mapa said, was to blame as it contracted 15.3 percent during the period.
“Manufacturing is so sensitive to the global environment for trade and this slowdown in the global economy has significantly impacted on our major exports, particularly semiconductors, electronics, these are the ones that are hardly hit in the
global economy,” National Economic and Development Authority (Neda) Secretary Arsenio M. Balisacan said during the briefing on Thursday.
“The other one is perhaps the high cost of inputs. For example, for the food manufacturing sector, as you have seen, agricultural prices have [increased] substantially, like fertilizers and sugar is a major input in food manufacturing activities. High inflation there also reduces the profitability and competitiveness of food manufacturing industries,” he also said.
Based on PSA data, the growth of the manufacturing sector was also the slowest since the first quarter of 2021 when it only grew 0.8 percent. In the first quarter of 2022, the manufacturing sector grew 9.4 percent and in the last quarter, 3.9 percent.
The data also showed the manufacture of food products slowed to 5.8 percent compared to the 8 percent it posted in the first quarter of last year. However, the first-quarter performance was better than the 3.4 percent growth posted in the fourth quarter of 2023.
On exports, PSA data showed shipments of electronic products contracted 24.4 percent in the first quarter of 2023. This is the largest contraction of the electronic product exports at least in the past nine quarters.
“Manufacturing growth was slower during the quarter at 2 percent due to the combination of elevated inflation and weaker demand for exports,” Bank of the Philippine Islands said in a statement.
El Niño
The manufacturing sector’s woes may be far from over as Balisacan considers the coming El Niño a threat to the country’s power supply and the agriculture sector.
Balisacan said the El Niño could also have an impact on electricity, as a dry spell would mean less water to fill dams, especially those that provide hydropower for households and businesses alike. This, he said, is common in Mindanao.
He also said a slight El Niño has the ability to cut agriculture production growth by 1 to 2 percent. The good thing right now, he said, is that agriculture only accounts for 10 percent of the economy.
However, a dry spell could still make commodities expensive, which is not only a bane for the manufacturing sector but also to households. Balisacan also noted that the sector still employs millions of Filipinos.
“The contraction of agriculture, caused by El Niño, may not deeply impact the economy although it may deeply impact households because a large majority, more than 20 percent of your labor force, is in agriculture. So the social implications are more serious than the economic ones,” Balisacan said.
“The good thing is we have learned much from the experiences we’ve had in El Niño management and our knowledge is richer [so] that we should be able to address issues better,” he added.
Earlier, the Bangko Sentral ng Pilipinas (BSP) said the Philippines has mechanisms in place to cushion the impact of El Niño on food supply but says the extent of the impact, particularly on inflation, remains to be seen. (Story here: https://businessmirror.com.ph/2023/05/04/bsp-flags-el-ninos-inflation-impact/)
High inflation
The Neda chief also stressed that inflation remains a key factor that will affect the economy’s performance in the coming months.
Balisacan said the BSP has raised key rates in an attempt to cool inflation. These have proven to be effective as headline inflation may already have peaked and has started to slow to 6.6 percent in April 2023 from 7.6 percent in March and 8.6 percent in February 2023.
He noted that the latest inflation report numbers look promising: food inflation declined from 9.5 percent in March to 8 percent in April 2023, while non-food inflation declined from 6.3 percent in March 2023 to 5.5 percent in April.
“High inflation remains a challenge, and the Bangko Sentral ng Pilipinas’ move to raise its key policy rates to anchor inflation expectations and ensure price stability, may dampen future growth. But the improvement in the business climate can counter this unintended effect,” Balisacan said. “We anticipate this downward trend to continue as inflation eventually eases toward the government’s target range by the fourth quarter of 2023.”
MBC’s view
On Thursday, the Makati Business Club (MBC) said the country’s economic performance could also improve on the back of the Implementing Rules and Regulations (IRR) of the amendments to the Public Service Act.
MBC also noted that the ratification of the Regional Comprehensive Economic Partnership (RCEP) Agreement in February 2023, which is currently the world’s largest free trade agreement, could also boost economic growth.
“Despite various risks and challenges, the economic outlook for the Philippines in the near and medium term remains solid. We are confident that we will reach our target for this year of 6 to 7 percent growth rate and 6.5 to 8 percent for 2024 to 2028,” Balisacan said.
“The Filipino people can rest assured that we are committed to achieving rapid, sustained, and inclusive economic growth. We strongly encourage everyone to contribute to building a prosperous, inclusive, and resilient Philippines,” he concluded.
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