Reflections on economic growth: dynamics and risks
At end-January 2024, the Philippines’ statistical authority announced that the country’s economy expanded by 5.6%, just a tad higher than the 5.5% growth in 2023. Growth was propelled by financial and insurance activities up 8.5 percent; construction up 7.8 percent; and wholesale and retail trade as well as repair of motor vehicles and motorcycles up 5.5 percent. Some describe this as resiliency.
Still others zero in on the failure of the economy, or the government itself, to grow as projected at 6.0-6.5% for the whole year. It’s easy to blame the onslaught of typhoons during the latter part of the year, which constrained economic expansion. Such weather disturbances could indeed explain part of the failure, but not the entire dynamics. Sufficient stock buffering, mangrove propagation, zonal building along the coasts could have also mitigated the effects of these supply shocks. Yes, food inflation likewise deterred economic growth because private consumption spending was generally restrained.
It's hardly comforting to listen to the point of some observers that the results still put the Philippines among the fastest-growing economies in the Asia Pacific region, outpacing many of its ASEAN neighbors, and still propelling the country to its desired economic transformation. The economic scarring of the pandemic actually requires the Philippines to grow by much more than the targeted growth rates of 6-8% through the end of the Marcos Administration. Persistent poverty and income inequality are additional imperatives to grow by much more.
Rather than doing growth and inflation forecasts, we normally focus on examining both the dynamics and broad direction of the country’s macroeconomic fundamentals. For this purpose, we attempt to use some quantitative tools to get a stronger handle on the Philippines’ growth dynamics. Our assessments show that GDP growth may be expected to increase within a narrow band over the next two quarters—rising from just above 5.7% in Q1 to approximately 5.9% in Q2. This modest upward trend is driven by resilient historical GDP performance, growth in the services sector, and short-term USD/PHP exchange rate effects. Further refinements to the model are anticipated to enhance its capacity in capturing exogenous geopolitical shifts. However, if both domestic and geopolitical shocks occur in a big, adverse way, they could unsurprisingly alter the outcome of this initial analysis.
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