FOCUSING on sectors severely scarred by the pandemic will make the country’s GDP growth more sustainable, according to the National Economic and Development Authority (Neda) and local economists.
On Tuesday, the Philippine Statistics Authority (PSA) reported that the economy posted a growth of 7.4 percent in the second quarter. This is slower than the 8.2 percent posted in the first quarter of the year and the 12 percent recorded in the second quarter of last year.
In the first semester of the year, the economy posted an average growth of 7.8 percent. Socioeconomic Planning Secretary Arsenio M. Balisacan said this means the economy only needs to post a growth of 7.2 percent in the second semester to attain the high end of the 6.5 to 7.5 percent GDP growth target this year.
“We must apply the same or even better risk management protocols and protect the most vulnerable against high inflation and other shocks and scarring due to Covid-19,” Balisacan said. “There will be many more transformations in the social and economic sectors. The overall goal is to reinvigorate job creation and reduce poverty.”
Oxford Economics said the ongoing recovery of the Philippine economy “will be bumpy” given the Ukraine war, China’s zero-Covid policy, and global monetary tightening.
“We expect growth over H2 will be bumpy given the Ukraine war, China’s ongoing Covid strategy, and global monetary tightening are set to weaken external demand. On top of this elevated inflation and higher debt servicing costs are set to constrain household budgets and weigh on private consumption. With the Q2 [second quarter] GDP outcome coming in lower than expected we will be downgrading our 2022 GDP growth forecast,” Oxford Economics said.
Key sectors
In order to ensure that the economy continues to grow and in a sustainable manner, Ateneo Eagle Watch Senior Fellow Leonardo A. Lanzona Jr. told the BusinessMirror that sectors affected by the pandemic should be prioritized.
Lanzona said the government’s economic recovery program for these sectors should not only focus on raising productivity but in lowering poverty. “It is a simple matter of knowing the weaknesses in the economic structure exposed by the virus.”
He noted that the Philippines actually experienced “the most severe decline in GDP” in the ASEAN because of Covid-19. This may account for the country’s current performance to outpace most of its Southeast Asian neighbors, except for Vietnam.
Given this, Unionbank Chief Economist Ruben Carlo O. Asuncion said the government must be put to task to help the transport sector, fisherfolk and farmers as well as millions of micro, small and medium enterprises (MSMEs) which continue to struggle because of the pandemic.
The Philippine Chamber of Commerce and Industry (PCCI) earlier told the BusinessMirror that many businesses are struggling to cope with the high cost of raw materials caused by supply chain disruptions, preventing them from opening more job opportunities for Filipinos. (Story here: https://businessmirror.com.ph/2022/08/08/pcci-explains-how-jobless-data-reflect-business-woes%ef%bf%bc/)
“For the national government [NG], it would be best to be safeguarding purchasing power, i.e., making sure the marginalized are supported accordingly [to as many as possible]. Sectors badly hit are the transport sector, fisherfolk and farmers,” Asuncion told the BusinessMirror.
“Support for the MSMEs should also be distinct and deliberate to make sure jobs are retained in the biggest employers in the economy to continue to protect incomes and create more jobs,” he added.
Asuncion also said the Central Bank need not follow in the footsteps of the Federal Reserve in terms of monetary policy. He said inflation is expected to cool in the coming weeks, and the Bangko Sentral ng Pilipinas (BSP) should ensure that policy rates would not harm economic growth.
“The local central bank must carefully navigate and find the appropriate interest rate level [neutral rate], as mentioned, that will not harm coming growth prospects. Don’t have to follow the US Fed moves, but must be steadfast and data-dependent as needed,” he added.
Ayuda boosts consumption
Based on PSA data, household final consumption expenditure (HFCE) grew 8.6 percent in the second quarter. The average HFCE growth in the first semester came up to 9.3 percent.
The 8.6 percent was higher than the 7.3 percent in the same period in 2021 but lower than the 10 percent in the first quarter of this year.
Asuncion said one culprit could be the rise in global oil prices which began in February this year. This may have slowed down consumption of households, causing HFCE to slow in the second quarter.
However, Lanzona said, it may also be due to the absence of any ayuda in the second quarter. He said since the HFCE data has been adjusted for inflation, and placed at constant prices, the impact of expensive commodities would have no bearing on the data.
A Philippine News Agency (PNA) report said the Land Transportation Franchising and Regulatory Board (LTFRB) disbursed the first tranche of the government’s fuel subsidy program, or P1.72 billion. As of June 2022, some 264,578 drivers received P6,500 in subsidies from the government.
The Department of Budget and Management recently approved the P4.1-billion second tranche of the Targeted Cash Transfer Program. This will help over 4 million Filipino families from the ranks of the poorest, to cushion the impact of rising prices.
“This only proves my point that the ayuda has a significant role in the GDP. Despite the elections in May, which increased spending, the decline in the ayuda in the second quarter resulted in a lower growth rate in HFCE compared to the previous quarter,” Lanzona said.
Slowly but surely
Balisacan said the performance of sectors such as transport, accommodation, food service, and other services have shown slow but steady signs of recovery back to prepandemic levels.
As for the agriculture sector, which contracted 0.6 percent in the second quarter (full story here: https://businessmirror.com.ph/2022/08/08/crops-fisheries-pull-down-h1-farm-output-value/), Balisacan said the government stands ready to provide assistance to farmers.
He said the government will provide support through lower input costs, access to new farming technologies, financial assistance to farmers, and strengthening of the agricultural value chain.
Balisacan also noted that the services sector, which has been hit hard by the Covid-19-induced restrictions, is also on its way to a full recovery.
The Neda chief said the increase in foot traffic in retail and recreation centers, given improvements in mobility and easing of border restrictions, supported the faster growth in wholesale and retail trade.
The transport sector, Balisacan said, also posted faster growth. Based on data from Google Mobility, he said visits to public transport stations, workplaces, and retail and recreational places are already above prepandemic levels since the second half of May 2022.
Accommodation and food and beverage service activities sustained double-digit expansion in the reference period while robust output growth is seen in the arts, entertainment, recreation, and other service activities.
“Given this evidence, we are committed to pursuing the country’s full reopening, including the return of face-to-face schooling to address the learning losses and increase domestic activities. This push will begin with the health sector’s efforts to increase booster uptake,” he said.
Recently, the Department of Health launched the “PinasLakas” campaign, to give Covid-19 vaccine boosters to 50 percent of the 78-million target population within the first 100 days of the Marcos administration. This will allow more areas to de-escalate to Alert level 1 and, eventually, the complete removal of restrictions that hinder economic activity.
Image credits: AP