The 6.4% slowdown in growth of gross domestic product (GDP) in the first quarter of 2023 underscores the urgency of boosting domestic demand and the economy’s supply response to spur inclusive growth, IBON said. The continuing deceleration in household spending from low incomes and high prices is among the biggest factors in the slowdown, said the group, and is among issues that the administration can immediately address.
GDP growth slowed to 6.4% in the first quarter of 2023 from 7.1% in the fourth quarter of 2022 and also from 8% in the first quarter of 2022. Household final consumption expenditure (HFCE) accounts for over 70% of GDP, measured by expenditure, and trends here have a strong impact on overall GDP growth. HFCE declined for the fourth consecutive quarter and, at 6.3% in the first quarter of 2023, is already 3.7 percentage points slower than the 10% rate upon economic reopening in the first quarter of 2022.
IBON said that this is a clear sign that the purchasing power of families is failing from soaring prices, low wages and earnings, and worsening informality and joblessness. The group said that this highlights the urgency of substantial wage hikes and emergency cash assistance (ayuda) to increase household consumption and welfare, which will at the same time boost aggregate demand as an engine of growth.
The group pointed out the need to address jobless growth in certain industries and informality, which dampens domestic demand. Sub-sectors where employment declined despite reported growth include: human health and social work activities which grew by 7.5% yet saw employment decline 11.1% (79,000 less workers); manufacturing which grew 2%, but employment declined 1.3% (46,000 less workers); and construction which grew 10.8%, but employment declined 0.4% (18,000 less workers). There were similar trends in information and communication, and financial and insurance activities.
The number of informal and part-time workers with likely low and erratic incomes also grew. Between the first quarter of 2022 and first quarter 2023, informality swelled by 10.4% or 1.97 million workers (from 18.9 million to 20.8 million), while the number of part-time workers grew by 14.6% or 2.1 million workers (from 14.6 million to 16.8 million).
IBON also warned against the government’s misplaced reliance on exports and foreign investment as sources of growth as the global economy weakens and the likelihood of a global recession increases. The government’s focus should be on domestic demand-driven growth amid growing global uncertainty and volatility.
Boosting aggregate demand with wage hikes and ayuda needs to be accompanied by measures to improve the economy’s supply response, lest this just add to inflationary pressures. IBON noted that the country and its farmers are already gearing up for the effects of El Niño which will surely affect productivity in the agricultural sector unless the government intervenes immediately and effectively.
The Php5.3 trillion national budget for 2023 can be wielded better to spur growth and spread its benefits better, said the group. Spending needs to be shifted away from capital-intensive import-dependent infrastructure spending, addressing corruption and pork barrel leakages, and containing bloating debt servicing.
Instead, more attention needs to be given to items that more directly improve family welfare and have more domestic multiplier effects such as ayuda, wage subsidies, production support for farmers, fisherfolk and small enterprises, and social services. These fiscal realignments can also be complemented by implementing a long-awaited and justified wage hike. The economic team of Marcos Jr is reminded that in order to achieve sustainable, long-term growth, the state must invest in its people, said IBON. ###