An economist on Thursday said the domestic economic growth of 6.4 percent in the first quarter of 2023 surpassed expectations and is in line with normalizing base effects.

In a report, Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort said base effects played a big part in the slower growth, as measured by gross domestic product (GDP), in the first three months this year “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 GDP expanded by 7.1 percent in the fourth quarter of 2022.

“Thus, as a result of 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 full year 2023 and beyond,” he said.

Ricafort said favorable demographics remain among the economy’s growth drivers, noting that majority of the country’s more than 110 million population is “already at 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,” he said.

Ricafort said one of the biggest growth drivers of the domestic economy in the first quarter this year is the lower individual income tax rates, which is part of the Tax Reform for Acceleration and Inclusion (TRAIN) law.

He said the lower tax rates for most income brackets starting in January this year increased workers’ take home pay by around 3 to 5 percent.

“This could lead to increased consumer spending, which accounts for at least 75 percent of the economy, and, in turn, lead to faster economic/GDP growth; to also help ease the adverse effects of higher prices/inflation recently,” he added.

Ricafort said the expected easing in the rate of price increases in the coming months, with monetary authorities eyeing the return of inflation rate to within the government’s 2 to 4 percent target band starting in the last quarter of this year, is also a plus to domestic economic output.

He, however, said risks to inflation remain and these include the impact of looming El Niño, which is expected to lower agricultural output and increase prices.

Authorities said the dry spell is seen to start around June or July this year and last until the first quarter of 2024.

“Possible cut in Fed (Federal Reserve) and local policy rates for the coming months of 2023 and in 2024 would also help reduce borrowing/financing costs and, in turn, support faster economic/GDP growth,” he added. (PNA)