The lower-than-expected 5.6 percent growth in 2024 which fell short of the government goal of at least a 6 percent gross domestic product (GDP) expansion must be addressed as it was the second consecutive year that the goal was missed, according to analysts and trade groups.

Makati Business Club (MBC), the group of the biggest local companies, highlighted in a report the need for the government to fast-track the digital shift to fire up faltering growth.

A budget official also cited a more efficient budget utilization that was reflected in the Government Final Consumption Expenditure item in the breakdown of the economy’s performance which had the highest year-on-year growth rate at 9.7 percent.

Underspending addressed

Department of Budget and Management principal economist Joselito Basilio said the significant contributions of government spending highlight the effectiveness of the national government’s efforts in sustaining economic growth, particularly in addressing issues of underspending, providing sufficient budgets to programs with the highest multiplier effects, and intensifying efforts to advance the country’s infrastructure systems through the Build-Better-More Program.

Basilio also noted that as the GDP remained steady, gross national income grew year-on-year by 6.2 percent in the fourth quarter of 2024, bringing the full-year 2024 growth to 7.6 percent.

MBC quoted World Bank senior economist, Jaffar Al-Rikabi, who indicated that advancing the digital economy can help improve economic growth. “Increased digitalization could provide expanded market access, build resilience to economic shocks, and increase the country’s productivity, efficiency, and competitiveness.”

Human capital development initiatives would also be key to helping the Philippines take advantage of its young population.

Congress passed key reforms in 2024 that can help both human capital development and in attracting investment.

Among the reforms is the Enterprise-Based Education and Training (EBET) Framework Act, which aims to address the persistent issue of job-skills mismatch, according to the report.

The law creates a framework for career advancement and industry-relevant skills.

Another would be the CREATE More Act which clarifies existing provisions and improves existing incentives.

The World Economic Outlook of the International Monetary Fund gave a forecast that 2025 economic growth for the Philippines will recover at 6.1 percent. The national polls will be held this May.

Estimates off

The year’s growth figure fell short of the median estimate of local economists, which was 5.8 percent. It also missed the government’s target of 6 percent to 6.5 percent for 2024.

The government has revised its 2025 GDP growth target to a range of 6.5 percent to 7.5 percent.

On the demand side, government spending expanded by 9.7 percent, accelerating from 5 percent in the previous quarter.

The increase is driven by infrastructure projects, social programs, and higher public-sector expenditure in anticipation of the 2025 midterm elections.

Household spending grew by 4.7 percent from 5.2 percent. Investment rose by 4.1 percent, a sharp slowdown from 13.7 percent in the third quarter. The significant drop suggests that businesses may be exercising caution in expanding capacity, potentially due to rising borrowing costs, global uncertainty, or weaker demand prospects.

Exports of goods and services increased by 3.2 percent, while imports of goods and services declined by 3.2 percent.

On the supply side, the Services sector expanded by 6.7 percent and continues to drive overall growth reflecting strong activity in sectors such as retail, finance, and tourism, which benefit from the country’s consumer-driven economy.

The report added that the industry expanded by 4.4 percent which suggests moderate but stable expansion in manufacturing and construction, despite global supply chain challenges and input cost pressures.

Agriculture sputters

A persistent disappointment is agriculture, which contracted last year by 1.8 percent primarily due to adverse weather conditions, particularly numerous typhoons and the prevalence of animal diseases.

The Department of Agriculture reported that the farm sector alone suffered P57.78 billion in damages in 2024, a 136.4 percent increase from the previous year’s P24.44 billion, posing a high risk to food security and inflation rates.

The latest Philippine Economic Update of the World Bank released in December 2024 showed economic growth for this year may be slightly weaker than expected due to several typhoons that hit the country affecting both agriculture and infrastructure.