The Philippines needs to diversify its sources of economic growth beyond consumption and services to achieve faster, more sustainable and inclusive expansion, Department of Economy, Planning and Development (DEPDev) Secretary Arsenio Balisacan said.

“We need to diversify the sources of our growth to include, on the demand side, more investment and exports, and on the supply side, industry and agriculture,” Balisacan said during the recent Economic Journalists Association of the Philippines Economic Forum.

The Philippine economy grew 2.3 percent in the second quarter, slowing from 2.8 percent in the first quarter and marking its weakest growth rate since 2009, excluding the Covid-19-era recession.

Growth slowed for the fourth consecutive quarter as infrastructure investment continued to be hampered by ongoing probes into last year’s floodgate scandal.

Balisacan, however, expects growth to recover in the coming quarters.

“If you look comparatively at the Philippine economy in comparison with our neighbors, you find that in contrast to the past image of our country as always a laggard, the last 15 years have not been the case. We have become part of the fast-growing countries of Southeast Asia,” he said.

“The last three months of bumps would not eliminate that narrative. And with the recovery we are expecting in the quarters and years ahead, that narrative will continue,” he added.

President Ferdinand Marcos Jr., in a separate admission on Friday, said public spending incurred a seven percent shortfall due to the flood control infrastructure projects’ controversy since last year.

Consumption has long been the main driver of the Philippine economy, historically accounting for around two-thirds of total GDP.

Bank of the Philippine Islands lead economist Emilio Neri Jr. noted that consumer demand also remained soft during the second quarter, with household consumption expanding by only 2.8 percent as inflation spiked to a three-year high in April, driven mainly by higher fuel prices linked to the Middle East conflict.

“A closer look at spending patterns suggests that households became increasingly selective in their expenditures, allocating a larger share of their budgets toward essential goods and services while cutting back on discretionary purchases,” he said.

Industrialization pivot

Balisacan encouraged that the Philippines should pivot back to industrialization and agriculture as key growth pillars, noting that innovation would be crucial to improving productivity over the longer term.

“We can get back to industry, and we can revitalize agriculture to reinforce the pillars. We have actually done well in terms of innovation. In the longer term, it is really productivity growth fueled by innovation that drives GDP growth,” he said.

“There [is] good news about our ability to adapt, and I think that the fear that we would lose a lot of our IT BPM in this evolving AI does not seem to be — or appears to be quite exaggerated — because despite the AI, the sector is still growing,” Balisacan said.

For the remaining two years of the Marcos administration, the government is targeting five percent to six percent economic growth, inflation of four percent to five percent in 2027 and two percent to four percent in 2028, and a poverty rate below 10 percent.