NextGen Day

An analyst claimed on Thursday that the first-quarter 2023 domestic GDP growth of 6.4 percent exceeded forecasts and was consistent with normalizing base effects.

Base effects were a significant factor in the slower growth of the gross domestic product (GDP) in the first three months of this year, according to a report by Michael Ricafort, chief economist of Rizal Commercial Banking Corporation (RCBC), “as there have been no more large lockdowns since 2022; compared to some pocket of lockdowns in 2021 that created a lower base/denominator for 2022.”

The fourth quarter of 2022 saw the GDP grow by 7.1%.

Accordingly, he stated, “Due to normalizing base/denominator effects (also after the one-time election-related spending for 2022), Philippine GDP growth for the coming quarters could normalize further to around 5.5-6.5 percent for 2Q-4Q (second quarter to fourth quarter) 2023 and for the full year 2023 and beyond.

According to Ricafort, favorable demographics continue to be one of the factors driving economic growth. He noted that the bulk of the nation’s more than 110 million people are “already of working age since 2015.”

“Before the pandemic, Philippine economic/GDP consistently grew by at least 6 percent from 2012-2019 due to the demographic sweet spot/dividend,” the author claimed.

According to Ricafort, the Tax Reform for Acceleration and Inclusion (TRAIN) law’s lower individual income tax rates were one of the main growth drivers of the domestic economy in the first quarter of this year.

He said that since most income categories began paying reduced tax rates in January of this year, workers’ take-home pay climbed by roughly 3 to 5 percent.

“This could result in more consumer spending, which makes up at least 75% of the economy, and, in turn, lead to faster GDP growth. It could also help mitigate the negative effects of recent price increases and inflation,” he continued.

According to Ricafort, domestic economic output will benefit from the anticipated slowing in price increases in the upcoming months, with monetary authorities aiming for a return of inflation to within the government’s goal range of 2 to 4 percent starting in the fourth quarter of this year.

However, he noted that there are still threats to inflation, such as the impact of the impending El Nio, which is predicted to reduce agricultural output and raise prices.

According to the authorities, the dry spell is expected to begin in June or July of this year and persist until the first quarter of 2024.

“Possible cuts in Fed (Federal Reserve) and local policy rates for the upcoming months of 2023 and 2024 would also help reduce borrowing/financing costs and, in turn, support faster economic/GDP growth,” the author continued.

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