Bright spot in a gloomy 3rd quarter

The 4% growth of GDP in the third quarter of the current year has dampened the mood of investors. This is way below the government’s target of 5.5% to 6.5% for the whole of 2025. Most analysts attribute this below-average growth rate to the corruption scandal that exploded during the third quarter and the natural calamities such as earthquakes and super typhoons that occurred during the quarter.

As an incurable optimist, I agree with the view of some government officials that there can be a strong recovery in the fourth quarter as a result of robust consumption spending (consumption accounts for 70% of GDP) that is reasonably expected during the Christmas season (which started during the first week of September). Where will the purchasing power of the 110 million Filipino consumers come from? From the $40 billion of overseas Filipino workers (OFW) remittances and another $40 billion from the earnings of the Information Technology and Business Process Management (IT-BPM) sector that is already employing some 1.7 million relatively well-paid knowledge workers.

It is worth noting that even during the third quarter that posted a very disappointing 4% GDP growth, there were some sectors related to consumption that grew much faster at 5% (wholesale/retail); 6.2% (professional and business services); 6.6% (public administration and compulsory social activities); 6% (education); and a whopping 12.2% (human health and social work activities). It is not unreasonable to expect that those millions of relatives of OFWs and IT-BPM workers who are the beneficiaries of some $80 billion in income (about 20% of GDP) would stimulate consumption during the merry days of the Christmas season as they get P58 to P59 from every dollar earned by the OFWs and by the industry they work for.

I am not worried about the so-called depreciation of the peso because, thanks to the expert management of the Central Bank officials, our inflation rate is very much under control at less than 2% annualized rate. I prefer P59 to a dollar to P54 to a dollar.

An even better reason to rejoice during this cursed season of corruption and natural calamities is what happened to the perennially lagging agricultural sector. After growing at an unbelievable rate of 7% during the second quarter, it again defied the forces of nature and previous government neglect and management by growing at 2.8% in the third quarter. It must be remembered that the so-called agricultural, fishery, and forestry (AFF) sector averaged 0.2% annual growth between 2012 and 2022 while the national GDP was growing at 6% to 7%. In contrast, our ASEAN peers were growing at 2% (Malaysia); 2.5% (Thailand); 3.5% (Vietnam), and 3% (Indonesia).

From the very start of the Marcos Jr. Administration, I have been setting a goal of an average of 2% to 3% growth in agriculture for us to be able to achieve the 8% GDP growth we need to bring down our poverty rate of 16% to single-digits by the end of the current administration. The good news is that thanks to the President’s assigning the highest priority to food security (he was Secretary of Agriculture during the first 14 months of his term) and his having appointed a very effective, street smart and experienced Secretary of Agriculture in the person of Francis Tiu Laurel, the first requirement for avoiding the middle-income trap (we will be an upper middle-income economy reaching an average per capita income of $4,500 by July 2026) seems to be within reach.

During the first nine months of the current year, the agricultural sector grew by 3.5%, at par with our ASEAN peers. Strong crops and poultry output offset the decline in livestock and fisheries. Crops accounted for 53.3% and poultry for 18.6% of total agricultural production. According to former Secretary of Agriculture William Dar, farm crop production increased in the third quarter, despite natural calamities, because of an increase in the hectarage of rice, ability to bounce back to production, and timely distribution of agricultural inputs and machinery.

Another reason to be optimistic about the strong growth of agriculture for the whole year is the expectation of most experts and analysts in the agribusiness sector that, despite the strong typhoons that struck the country in October and early November, the adverse impact on agricultural output will be minor. As reported in this paper by Vonn Andrei Villamiel, Danilo Fausto, president of the Philippine Chamber of Agriculture and Food declared that “except for high-value crops, the typhoons are not expected to significantly affect overall output, and production for the year is likely to be better than in previous years.”

Since rice constitutes a significant 38% of total crop production in the Philippines, it is also a reason for optimism that a more flexible rice tariff scheme has been approved by the Economy and Development (ED) Council. The Department of Economy, Planning, and Development (DEPDev) announced: “Starting Jan. 1, 2026, a more gradual and flexible adjustment shall be adopted by 5% change in international prices, subject to a minimum rate of 15% and a maximum of 35%. The ED Council also approved the recommendation of the Tariff and Related Matters Committee (TRMC) to maintain the current most Favored Nation tariff rate on rice imports at 15% until Dec. 31, for both in-quota and out-quota imports. We are fortunately moving towards a more reasonable manner of balancing the conflicting interests of more than a 100 million Filipino rice eaters and the close to 3 million farmers. For too long in the past, we wasted billions of pesos in trying to be self-sufficient in rice when it was very obvious that we can never produce rice as cost effectively as countries like Thailand and Vietnam whose rivers are veritable oceans. Water is the most crucial ingredient in rice production. We should have early on perfected the tariffication policy as we are doing now. Tariffication avoids the injustice of promoting always the interests of the 3 million rice farmers at the expense of the more than 100 million rice consumers.”

There is a high probability that President Ferdinand Marcos, Jr. will succeed in attaining the 3% average annual growth rate in the agricultural sector that will put us at par with our ASEAN neighbors like Thailand and Vietnam in the field of agriculture and thus in food security.

As I have written in various articles before, it is the Marcos Jr. strategy to assign to the government the task of helping the millions of rice, corn, vegetable, and fruit farmers as well as fisherfolk through the construction of farm-to-market roads, irrigation and post-harvest facilities, and the provision of agricultural extension services, rural credit, etc. as a means of reducing the poverty incidence.

At the same time, to help the agricultural sector take a quantum leap in volume of production, the government will make it politically and technically possible for the private business to consolidate millions of hectares of land (especially denuded forests) so that the very successful banana and pineapple models in Mindanao could be replicated all over the archipelago in the profitable cultivation of other high-value crops like coconut, palm oil, cacao, coffee, mango, avocado, cashew, pili, durian, and bamboo, among others. This goal is the first requirement for the Philippine economy to reach First World status 20 years from now.

The other two pre-requisites are to attract an annual average of $15 billion to $20 billion in Foreign Direct Investments (FDIs). The third is to stop the trillions of pesos of leaks from public funds that result from corruption. We hope to discuss these two other goals in future articles.

Bernardo M. Villegas has a Ph.D. in Economics from Harvard, is professor emeritus at the University of Asia and the Pacific, and a visiting professor at the IESE Business School in Barcelona, Spain. He was a member of the 1986 Constitutional Commission.

[e-mail]