FILIPINOS trying their best to keep up with rising prices led to the slowest consumption growth in two years, according to local economists.
On Thursday, the Philippine Statistics Authority (PSA) announced that the country’s GDP grew 5.9 percent in the third quarter. This was faster than the 4.3 percent growth in the second quarter but slower than the 7.7 percent posted in the third quarter of last year. (Full story here: https://businessmirror.com.ph/2023/11/09/gdp-up-5-9-in-q3/)
While government consumption improved to 6.7 percent, household consumption slowed to 5 percent, the lowest since the 4.8-percent contraction recorded in the first quarter of 2021.
“Inflation is key to the revival of the robust growth in consumption spending. And so the focus is ensuring that that reduction, that decrease in inflation reported for October 2023 will be sustained in the coming months,” Socioeconomic Planning Secretary Arsenio M. Balisacan said in a briefing on Thursday.
Apart from high inflation, the decline in Labor Force participation could also be blamed for the slowdown in consumption.
Based on data obtained by BusinessMirror from the PSA, there were 49.04 million Filipinos in the labor force in the third quarter of the year, a 2.33-percent reduction from the 50.21 million in the labor force in the third quarter of 2022.
The country’s Labor Force Participation Rate also slowed to 62.9 percent in the third quarter of 2023 from the 65.5 percent in the third quarter of 2022.
In September alone, the Labor Force Participation level was at 49.929 million and the rate is at 64.1 percent. This was lower than the 50.08 million posted in September 2022 with a rate of 65.2 percent.
National Statistician Claire Dennis S. Mapa said survey respondents identified schooling as the top reason for quitting the labor force. He quoted 355,000 respondents saying they are not part of the labor force because they are in school.
There were also 124,000 workers who said they tried looking for jobs and couldn’t find one, so they opted out. Some 140,000 workers opted out of the labor force because they believed no jobs were available for them.
“Consumption did not kick off that much because goods are more expensive so people are doing a lot of saving. That means, they are looking for other means to earn so they are finding this in the informal sector,” De La Salle University economist Maria Ella Oplas told BusinessMirror, speaking partly in Filipino. “Consumption is very minimal as in super basic precisely because goods are costlier, plus income is hard to earn.”
Former Neda Secretary Dante B. Canlas agreed that both inflation and the decline in the labor force are factors for the slowdown in household consumption, a key driver of the economy.
Canlas said a number of factors are at play such as lower personal disposable income due to unemployment and declining LFPR.
In the long run, he added, households may expect further slowdown in income, especially in the context of high interest rates. The recent off-cycle rate increase, the Monetary Board raised key policy rates by 25 basis points to 6.5 percent.
This, Canlas said, would likely motivate households to delay their consumption. He said efforts to prop up consumption and the country’s economic performance require certain interventions.
“Job creation (is needed) to raise real wages. Fight inflation through more supply interventions, and less use of interest rate hikes,” Canlas said.
Rizal Commercial Banking Corporation Chief Economist Michael L. Ricafort also said lower labor force participation levels and rates contribute to lower consumption.
This is why the government must take strides to “protect the poorest of the poor and those with limited incomes/budgets by nipping inflation in the bud [to] prevent it from spiraling.”
“Given the data in the third quarter, it’s hard to recover with the way things are,” Oplas, however, said. “Christmas is really short this year.”
Nonetheless, Ricafort said the fourth quarter may see better household consumption growth on the back of the upcoming holiday season.
This is the same outlook of Balisacan, who said the economic team is confident that household consumption will improve in the fourth quarter. Government spending, which improved in the third quarter, also has room to improve, he said.
“In the longer haul what we want to happen is the investment must increase substantially. And so that’s why the economic team is so focused on seeing the economy attracting more investors, domestic or foreign, because the only way you can continually improve the quality of employment is that investment is increasing because we need more factories… all these kinds of things that will complement labor,” Balisacan stressed.
Ateneo de Manila University economist Leonardo Lanzona said the third quarter economic growth has led to the conclusion that revenge spending or pent-up demand has been spent.
Lanzona lamented that the government’s spending, which offset the shortfall in consumption, did not lead to multiplier effects. This suggests the growth only went to owners of capital.
Valuables, based on the data, was the fastest-growing in terms of the consumption side of GDP, posting growth of 94.9 percent. Valuables include the purchase of antiques, jewelries, and other high-value items that only the rich can afford.
“Gains in growth were mostly going to owners of capital, as production may have become more capital intensive. Thus, this type of growth is more polarizing than inclusive,” Lanzona told BusinessMirror.
Ibon Foundation Inc. raised the same concern, especially employment contracting 1.7 percent or 825,000 jobs to 46.8 million in the September Labor Force data.
“The reported 5.9-percent growth in the third quarter from the year before isn’t just jobless but job-destroying. Real national industrialization replacing old neoliberal free market thinking is long overdue,” Ibon Foundation Inc. Executive Director Sonny Africa said.
In his statement on Thursday, Balisacan said the economy needs to grow by 7.2 percent year-on-year for the fourth quarter of 2023 to attain the low end of the government’s target of 6 percent to 7 percent for 2023.
GDP growth in the first to third quarters or between January to September this year was pegged at 5.5 percent.
Balisacan said the growth in the third quarter and the January to September period was also made possible by government’s spending catch-up.
“These plans aim to expedite the implementation of government programs and projects and improve the delivery of public services under the 2023 public expenditure program,” Balisacan said.
“These actions addressed the contraction in government spending in the previous quarter. We hope to maintain this momentum for the remainder of the year and the years to come,” he added.
To contain inflation, Balisacan said the government aims to provide support for agricultural production in the provinces that can still grow food during the worst of the El Niño.
The government will also provide emergency employment opportunities for farmers in provinces who cannot produce during this period through the help of the interagency El Niño Task Force.
PPP Act signing
The National Economic and Development Authority (Neda) said the expected signing of the Public Private Partnership (PPP) Act will help keep the momentum for growth.
The growth data reported on Thursday puts the Philippines as having the fastest economic growth among emerging economies in Asia during the third quarter beating Vietnam (5.3 percent), Indonesia (4.9 percent), China (4.9 percent) and Malaysia (3.3 percent).
Neda chief Balisacan said he is hopeful the country can sustain the growth rate that will encourage more investments in the country such as the PPP Act.
“Moving forward, we will continue to leverage the full implementation of liberalization reforms to intensify investment promotion in the country and boost growth, thereby generating higher-quality employment opportunities for our growing labor force,” Balisacan.
He said Congress already completed the consolidated version of the legislation, which is expected to be signed by President Ferdinand R. Marcos, Jr. within the year.
Once implemented, the PPP Act “would promote greater private sector participation in the country’s infrastructure development,” according to Balisacan. With a report by Samuel P. Medenilla
Image credits: Nonie Reyes