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According to an economist, consumer spending was the key driver of the first quarter’s 6% growth in the Philippine economy.

According to a report by Michael Ricafort, chief economist at Rizal Commercial Banking Corporation (RCBC), lower individual tax rates that took effect in January of this year as part of the Tax Reform for Acceleration and Inclusion (TRAIN) law may have increased consumer spending, which makes up at least 75% of the economy.

The TRAIN law reduces the previous 20 percent to 32 percent income tax rates to 15 percent to 30 percent for taxpayers earning more than PHP250,000 but not more than PHP8 million annually.

According to Ricafort, rising sales resulted from the economy’s continued opening up.

“Measures to reopen the economy towards greater normalcy that increased sales overshadowed the risks of higher prices, higher interest rates amid aggressive Fed rate hikes as well as local policy rate hikes in recent months, relatively weaker peso exchange rate especially compared to early 2022, and risk of recession in the US, which is the world’s largest economy and could slow down global economic recovery in terms of some slowdown in global growth,”

However, Ricafort’s prediction was less rapid than the 8.2 percent GDP growth in the first quarter of 2022.

Although the Philippine economy has already recovered to its pre-pandemic levels, he claimed there are still compensating difficulties.

These include the higher inflation rate, which reached 6.6 percent as of April this year, the higher local and international interest rates that increased the cost of borrowing, and the possibility of a US recession.

Other potential economic growth drivers, according to Ricafort, include the remittances sent home by Filipinos who work abroad, a low unemployment rate, manufacturing, and increased government investment, particularly in infrastructure.

“The implementation of additional reform measures, particularly fiscal reform and other economic reform measures that would help further relax restrictions on foreign ownership, would help attract the entry of more foreign investment, such as the amendments to the Public Services Act, Retail Trade Liberalization Act, and Foreign Investment Act, among others, would help boost investor confidence and lead to the creation of more jobs and other business opportunities that would also help the country’s economy.

On May 11, the Philippine Statistics Authority will publish the precise first-quarter GDP growth figures.

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