Bernardo M. Villegas
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Outlook for Second Semester 2023 (Part 1)

             There is no need to panic because the GDP growth rate slowed down to 4.3 % in the second quarter compared to 6.4 % in the first quarter of 2023.  The Government can still achieve its goal of having the GDP for the whole year of 2023 grow at 6% or more.  The needed growth rate of 6.6% for the second semester of 2023 is within reach for reasons I will outline below.

            First, the main reason for the slowdown is the very high rate of inflation (6 to 8%) that prevailed during the last quarter of 2022 and the first quarter of 2023.  There is always a lag between inflation and consumers’ decision to spend.  So the brunt of this lagged effect happened in the second quarter of this current year.  The good news is that since May of 2023, the inflation rate has been trending down so that by July the rate is already at 4.3%.  With a very competent Central Bank knowing how to use all of its tools in inflation targeting, I am confident that the inflation rate by the end of this year will be close to 3.5%, the rate with which consumers are comfortable to motivate them to resume what is now known as “revenge spending”, providentially coinciding with the usually bullish Christmas season—which in this country begins on September 1!  Just to be flippant, let’s encourage Jose Mari Chan to start singing his Christmas carols starting the last week of August which will coincide with the opening of classes for the public school system.

            As was proven during the height of the pandemic, the Filipino overseas workers always come to the rescue when Philippine consumption is at a low level.  Despite the fact that during the pandemic some 400,000 Filipino workers abroad were sent home because they lost their jobs, remittances from their earnings hardly dropped (there was a -0.5 decline in 2020 and before long in 2021 it was already growing at the usual 3 to 5% rate).  The OFWS dipped on their savings to give an economic lifeline to their families.   I foresee OFW remittances growing in the second semester closer to the high range of 5%, especially as the Philippine peso depreciates to a level of P56 to P57 to $1 as imports rise in the face of Christmas spending while exports are negatively affected by the recession in China and the West.

            As I have observed in my frequent travels to Mindanao and the Visayas to give economic briefings during the months of July and August, domestic tourism has not waned.  The planes and hotels are full.  Not necessarily something to celebrate because of some fatal accidents, the ships are filled to the brim.  Traffic in cities like Davao and Cebu is reaching levels close to Metro Manila.   This does not even take into account the fact that starting the second half of August 2023, there will be some 22 million students at all levels who will be going back to face-to-face classes.  Consider the big boost of these 22 million young people million spending on transport, food eaten outside the home, new clothes and shoes, school supplies, digital services and a host of other education-related expenditures.  Let me point out that the largest decline during the second quarter was experienced in the transportation and storage industry, which shrank by a whopping 17.9 percent between the first quarter and the second of 2023.  With the opening of face to face classes, transport expenses can be expected to recover strongly.  The daily commute in the urban areas of at least the high school and college students to and from their respective residences can counteract any slowdown of domestic tourism

            Also, the Government can be expected to increase its resolve not to underspend on its budget as it has been doing in the last few months.  The Marcos economic team has admitted that there was a 7.1 percent contraction in government expenditures in the second quarter—a reversal  of the 6.2 percent growth in the first quarter and the 10.9 percent increase in the same period last year.  As reported in an editorial of a daily, the Government missed its P2.58 trillion spending program for the first half of the year by a hefty 6.6 percent.  Given this underperformance, the economic managers promised that “government spending will accelerate in the coming quarters to allow for a recovery of the growth momentum.”

Also providentially, some large-scale Public-Private Partnership (PPP) infra projects, like the railway from Clark to Bulacan and the two subway systems in the Metro Manila area, will be going full blast.  There will be also be a great deal of spending in the areas outside of Metro Manila to repair and maintain many of the infrastructures that were damaged by the recent strong typhoons that caused a lot of flooding, especially in regions like Central Luzon and many regions in the island of Mindanao.  It is reassuring that the BBM Administration is bent on replicating the 5 to 6% or GDP spent on infrastructures that was initiated during the Duterte Administration.   To be continued.