Recent Economic Performance and Growth Outlook
Secretary Arsenio M. Balisacan, PhD
National Economic and Development Authority
Agenda for Prosperity:
Fulfilling the Needs and Aspirations of the Filipino People
Sen. A.B. Padilla Room, Senate of the Philippines, Pasay City
August 13, 2024 | 10:30 A.M.
Honorable Chairperson of the Committee on Finance, Senator Grace Poe,
Honorable members of the Senate,
Colleagues in government,
Ladies and gentlemen,
Good morning.
Madam Chair, let me begin with our recent economic performance.
The Philippine economy has sustained its robust post-pandemic growth trajectory, demonstrating resilience amid various domestic and external shocks.
Last week, the Philippine Statistics Authority reported that the Philippine economy’s gross domestic product (GDP) growth has accelerated to 6.3 percent in the second quarter, faster than the adjusted 5.8 percent growth rate in the first quarter of 2024.
Madam Chair, this significant development brings our real GDP growth to 6.0 percent for the year’s first half, keeping our position as one of Asia’s best-performing major emerging economies. For East Asia’s economies that have released their second quarter 2024 GDP growth, we follow behind Vietnam at 6.9 percent while leading Malaysia at 5.8 percent, Indonesia at 5.0 percent, and China at 4.7 percent.
Robust domestic demand, particularly government spending and capital formation, otherwise known as investments, propelled growth in the first semester of 2024.
Government spending grew by 6.6 percent in the first half of 2024, reversing the 1.4 percent contraction in the first semester of 2023 as we expedited the delivery of various programs.
Capital formation expanded by 6.5 percent in the first half of this year, accounting for about one-fourth of the GDP growth. This expansion was fueled by the strong performance in public construction, which grew 19.5 percent, significantly higher than the 1.5 percent in the first semester of 2023.
Meanwhile, household expenditure remained subdued at 4.6 percent due to elevated food prices. Nonetheless, it remains the most significant contributor to overall growth, accounting for over 50 percent of GDP growth in the year’s first half.
On the production side of our economy, modest growth in manufacturing (4.0 percent in S1 2024) and sustained double-digit growth in construction (12.4 percent from 11.0 percent) largely contributed to the industry sector’s expansion. Encouragingly, the sector increased its share of overall growth, accounting for nearly a third of GDP growth in the year’s first half.
The services sector remained robust, recording a 6.8 percent growth rate in the year’s first half. This sector remains the dominant contributor to our GDP growth, accounting for about 70 percent in the year’s first half.
Meanwhile, the agriculture sector’s output declined by 0.9 percent as crop production contracted, particularly rice and sugarcane, due to the adverse effects of El Niño.
On the expenditure side, all sectors have already surpassed their pre-pandemic levels as of the first semester 2024.
On the other hand, on the production side, a few sectors, particularly mining and quarrying and real estate, have not yet reached their pre-pandemic levels, while transport and storage and other services are nearing their pre-pandemic levels. These sectors account for 10.3 percent of the country’s GDP.
Madam Chair, real GDP per capita growth increased to 5.4 percent in the second quarter of 2024 from 4.8 percent in the first quarter, bringing first-semester growth to 5.1 percent. As of the first half of this year, real GDP per capita has already exceeded its pre-pandemic levels.
The recently released June 2024 Labor Force Survey results show that the Philippine labor market remains robust and resilient. The unemployment rate reached a record low of 3.1 percent. Year-on-year, we generated an additional employment of 1.4 million. Meanwhile, the underemployment rate has trended downward, indicating better job quality.
Approved foreign investments in the first quarter of 2024 contracted by 63.6 percent year-on-year, mainly owing to base effects given a significant amount committed by Germany and the Netherlands in the first quarter of 2023.
However, we observed net foreign direct investment or FDI inflows growing strongly by 18.7 percent year-on-year (from USD 3.0 billion to USD 3.5 billion) from January to April 2024. This growth reflects an improvement in investor confidence amid global uncertainties.
As Governor Eli mentioned, the country’s overall inflation was higher at 4.4 percent in July 2024 compared to the 3.7 percent figure recorded in June, driven by faster inflation in food and non-food items. However, we expect inflation to return to its longer-term downward trend in the coming months.
Inflation of food and non-alcoholic beverages increased to 6.4 percent in July 2024 from 6.1 percent in June 2024. Meanwhile, non-food inflation increased to 3.1 percent in July 2024 from 2.3 percent in the preceding month.
As also shown earlier by Governor Eli, since mid-2022, we have observed that food inflation has mainly driven overall inflation.
The contribution of food inflation further increased in the third quarter of 2023 due to the increase in the price of rice. Since September 2023, rice has ranked as the top driver of food inflation.
In July 2024, we observed that rice, meat, vegetables, fruits, and ready-made food products mainly drove food inflation.
The 2023 Full Year Official Poverty Statistics showed that the poverty incidence among the population significantly decreased to 15.5 percent from 18.1 percent in 2021, translating into 2.45 million Filipinos lifted out of poverty based on official poverty lines.
Meanwhile, the number of food-poor Filipinos saw a significant decline, dropping from 6.55 million in 2021 to 4.84 million in 2023, a reassuring sign of progress in our efforts to combat hunger and poverty.
This performance could have been even more impressive if not for the high inflation that the country faced in 2023 and early this year. Encouragingly, we also observed that poorer households’ income growth, or the growth of the bottom 20 percent of our population, was faster than the more affluent households, indicating that economic growth was broadly inclusive.
Madam Chair, let me now turn to our growth outlook.
The Development Budget Coordination Committee has maintained the economic growth targets of 6.0 to 7.0 percent for 2024, 6.5 to 7.5 for 2025, and 6.5 to 8.0 percent for 2026 to 2028.
Given the latest GDP outturn of 6.3 percent in the second quarter, the economy needs to grow by at least 6.0 percent in the second half of the year to meet the low-end growth target of 6.0 percent for 2024.
Meeting the low end of the target will keep the country on track to becoming an upper-middle-income country (UMIC) by 2025, provided that the other macroeconomic targets are also achieved. For example, the average foreign exchange rate during the period does not exceed PhP 58 to USD 1. Otherwise, reaching the upper-middle-income status could be delayed to 2026.
However, amid the evolving risks and challenges, the Philippines’ economic outlook remains promising in the near and medium term.
In particular, we expect growth in domestic demand to remain firm and further improve as we continuously implement measures to:
- Address elevated prices of food;
- Improve spending efficiency of government agencies to implement strategic priority programs and projects such as the Build-Better-More infrastructure flagship projects and the Pambansang Pabahay Para sa Pilipino housing program;
- Leverage agreements and initiatives such as the Regional Comprehensive Economic Partnership (RCEP) and the Luzon Economic Corridor while improving the ease of doing business to boost trade and investments; and
- Explore and forge agreements with other economies to expand our merchandise and services export market, including partnerships to boost tourism.
On the supply side, growth in the agriculture sector will be supported by strengthening the country’s disaster management and resilience to mitigate the impact of extreme weather events on agricultural productivity and food security. Upgrading our infrastructure and logistics networks, including irrigation, farm-to-market roads, digital connectivity, and markets for agricultural inputs and outputs, will enable us to boost the sector’s competitiveness.
As mentioned, the construction and manufacturing sectors will be buoyed by the government’s infrastructure and national housing programs, as well as the expected increase in the number of Public-Private Partnership or PPP projects in the pipeline. Harnessing the outputs of our robust services sector, for example, marketing, advertising, creative design, e-commerce, among others, will create greater value for our manufactured products.
Meanwhile, expanding ties with top visiting countries, improving the tourist experience, and strengthening our tourism infrastructure will fuel recovery in international visitor arrivals in the country and support growth in related industries. Moreover, passing the Konektadong Pinoy bill will improve accessibility and quality of internet connectivity across the country and spur growth in e-commerce and professional and business services, among other things. Upskilling and reskilling our workers in the IT-BPM sector will be vital to ensuring that our workers can adapt and thrive even with the fast-paced evolution of new technologies.
Nevertheless, we are proactively monitoring and addressing the domestic and external risks that could challenge our growth outlook, including the looming threat of La Niña, strong typhoons in the second half of the year, and the spread of highly infectious animal diseases.
We also urge the collaboration of the Executive and Legislative to expedite the enactment of critical reforms, as delays could undermine our growth momentum. Meanwhile, we will address the weak absorptive capacity of implementing agencies and local government units to ensure the timely and efficient delivery of public services.
On the external front, we are closely monitoring global economic developments, such as the potential slowdown of major economies, growing geopolitical and trade tensions, and the result of general elections in major economies that could trigger political shifts and disrupt trade and investment.
So, how do we intend to achieve the growth target we have set for 2025?
To boost growth next year, the Marcos Administration will continue to implement the strategies we have set in the Philippine Development Plan or PDP, guided by the lessons we have identified in the Philippine Development Report 2023. The PDP remains our development blueprint as we sustain the push to achieve our socioeconomic targets even as we recalibrate some of our strategies to respond to emerging economic circumstances.
To recall, the PDP prioritizes these six items on the Transformation Agenda, which also serves as the basis of the budget priorities for FY 2025. These cross-cutting strategies will enable us to upgrade our production sectors, strengthen the delivery of social services, and promote a dynamic and responsive regulatory, policy, and physical environment conducive to rapid and inclusive economic growth.
Critical reforms are needed to sustain the country’s economic growth over the medium to long term. In this regard, we are optimistic about the passage of the following top-priority bills identified by the Legislative-Executive Development Advisory Council or LEDAC. We deem these measures critical as we build on past reforms and further reinforce the country’s economic governance, accelerate the implementation of infrastructure projects, and maintain fiscal sustainability to support long-term growth.
Let me end, Madam Chair, by saying that we are making steady and solid progress. We remain broadly on track to meet our targets across various socioeconomic indices. We intend to sustain the growth momentum as we implement strategies to create higher-quality employment and protect our countrymen’s purchasing power.
Learning from the lessons these past two years, our proposed spending program for 2025 aims to propel us in the right direction and bring us ever closer to our aspiration for a Bagong Pilipinas and vision of a matatag, maginhawa, at panatag na buhay for every Filipino.
This concludes my presentation, Madam Chair. Thank you again and good morning.
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