‘Investment spending rebounds in 2023 4Q, driving GDP growth’

‘Investment spending rebounds in 2023 4Q, driving GDP growth’

The Philippine economy expanded by 5.6% in the 4th quarter of 2023, faster than the 5.2% median estimate of analysts surveyed by Bloomberg.

On an annual basis, the Philippine economy grew by 5.6% in 2023.

In a statement, Bank of the Philippine Islands predicted that the Bangko Sentral ng Pilipinas may keep its rates steady in the first half of the year, taking into account a possible inflation rebound in the 2nd quarter.

Rate cuts are possible in the 2nd half of the year once inflation is firmly within the target of the central bank.

However, the timing of future rate cuts and their magnitude also depend on what the Federal Reserve will do, BPI said.

If local inflation conditions are right, the BSP will likely respond immediately with rate cuts once the Fed begins its easing cycle, it said.

The Peso may appreciate in 2024, contingent on what the Federal Reserve will do. It seems the Peso has the tendency to strengthen when the Fed eases its monetary policy.

However, while a Fed cut might lead to Peso appreciation, its gains are likely to be smaller compared to other emerging market currencies given the substantial current account deficit of the country.

The Philippines has maintained its position as one of the fastest growing economies in the region despite the sub-6% growth last quarter. The country’s resilience is evident despite the headwinds affecting it, such as the high interest rate environment.

The economy has been able to absorb the rate hikes despite having the most aggressive monetary tightening in the region. It can be argued that the aggressive rate hikes were actually essential, as they have helped in preventing higher inflation which could have dragged growth further.

A more pronounced economic slowdown would have been felt if the BSP had not acted decisively to keep inflation expectations well anchored while tempering the second round effects of supply shocks on core CPI items, it said.

Consumer spending

Consumer spending growth managed to rebound with a 5.3% expansion in the 4th quarter of 2023 to end six consecutive quarters of deceleration. This can be attributed to the recent slowdown in inflation, boosting confidence and purchasing power.

The turnaround in HFCE growth shows how resilient consumer demand is underpinned by its young population, funded with remittances and improving job opportunities.

Among the consumer items, the ones with the significant increase in spending were restaurants, hotels, transport, and recreation.


Investment spending showed a notable recovery in the 4th quarter despite the elevated interest rates, posting a growth of 11.2% YoY.

This upswing suggests that businesses have likely adapted to the existing interest rate environment and are comfortable enough to ramp up their capital expenditures.

It seems that they are opting to expand their operations in response to the increase in consumer demand, deciding to just absorb the financing costs.

Public sector construction spending also managed to sustain its upward momentum.

Durable equipment growth has bounced back to double digits as firms invested more on new assets like transport and telecommunication equipment, just as agricultural machinery picked up.

Government spending

Government spending was sluggish once again, contracting by 1.8% last quarter.

The impact of government underspending on the economy has been significant, probably a greater contributor to the recent economic slowdown than the monetary policy normalization.

In the previous years, the average contribution of government spending to GDP growth was close to 1%.

But in 2023, its contribution was only 0.1%, effectively slashing 0.9% from GDP growth.


Agriculture managed to post decent growth in the 4th quarter amid the lack of major typhoons during the period.

The industry sector’s growth continues to be below its long term average given the lethargic growth of manufacturing. It seems manufacturing continues to struggle from the margin squeeze weak demand for exports.

The service sector continues to do most of the heavy lifting once again, growing by 7.4% during the quarter.

Industries which were severely affected by the pandemic like accommodation, food service, and transport continue to post significant growth as the spending pattern of consumers goes back to normal.

The contribution of trade to GDP growth has reverted to negative in the 4th quarter as imports grew and exports declined.

Demand for tech products globally has been sluggish throughout the year, causing an 11% drop in the country’s export of goods last quarter. (PR)


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