The Marcos administration missed its growth objective of 6 to 7 percent last year as increased interest rates brought on by the high level of inflation reduced consumption and spending.

Data released by the Philippine Statistics Authority (PSA) on Wednesday showed that the Philippine economy, measured by gross domestic product (GDP) or the total value of goods and services produced in a period, slowed by 5.6 percent for the whole 2023 from the 7.6 percent growth in 2022.

Consequently, PSA also reported that the country's economic growth rate also stood at 5.6 percent in the last quarter of last year, a decline from the 7.1 percent growth recorded in the fourth quarter of 2022.

In a press briefing, National Economic and Development Authority (NEDA) Secretary Arsenio Balisacan and PSA chief Dennis Mapa attributed last year's economic slowdown to high inflation and interest rate increases, which affected consumption spending.

Due to global supply disruptions and economic uncertainty caused by Russia's full-scale invasion and attack on Ukraine since February 2022, the Bangko Sentral ng Pilipinas' Monetary Board has raised the benchmark interest rate by 450 basis points since May 2022 to control inflation.

The percentage of growth in the cost of goods and services, known as full-year inflation, in the Philippines has notably slowed from 5.8 percent in 2022 to 6 percent in 2023.

"The impact of inflation is on Household final consumption expenditure. We saw the impact on food expenditure (was) directly affected by inflation," Mapa said.

"We are concerned about the low growth in real spending on food due to high food prices, though it has moderated in recent months," Balisacan said.

Government data showed that household spending decreased to 5.6 percent year-on-year in 2023 from 8.3 percent in 2022, while the expenditure during the fourth quarter last year declined to 5.3 percent from 7 percent in the same period in 2022.

Government spending also down

The final consumption expenditure of the government (GFCE) decreased to 3.6 percent, down from 6.7 percent in the third quarter.

Balisacan explained that the contraction in GFCE can be attributed to a reduction in government spending in the current year compared to 2022.

This reduction is influenced by both the election season and the ongoing adjustments related to COVID-19 vaccinations in the country.

The NEDA chief further mentioned that the government opted for "fiscal consolidation," leading to the decline in GFCE.

"The intention was for the government spending growth for 2023 not to be high. We aim to achieve fiscal consolidation, which involves reducing the fiscal deficit and government debt," Balisacan said.

Last 15 December 2023, the Development Budget Coordination Committee trimmed its GDP growth forecast for 2024, bringing it down from the previous estimate of 6.5 percent to 8 percent expansion to a range of 6.5 percent to 7.5 percent.

BSP Governor Eli Remolona said last 26 January the central bank will have "more room" to raise interest rates if the economy improves in the last quarter of 2023,

Still, he declared that the BSP will remain "hawkish" in spite of potential rate reduction and a slowdown in inflation.