Bernardo M. Villegas
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What’s In Store for 2024? (Part 1)

 I always look forward to participating in the Thought Leaders Fora organized by Leverage International (Consultants) Inc under the leadership of Ms. Cecille Sanchez as a public service to both business and government.  It is a very effective way for me to hone the economic forecasts that I am regularly asked to give in briefings to selected corporations.  I am able to obtain various perspectives and insights from some of the leading business analysts in the country, enabling me to avoid some possible unconscious biases I may have in judging the impact of certain non-economic factors on the future of the economy.

Last March 8, Leverage International put together some of the leading lights among business analysts in the country:  Dr. Roberto F. de Ocampo, former Secretary of Finance;  Ms. Rosemarie Edillon, Undersecretary of NEDA; Mr. Diwa Guinigundo, Former Deputy Governor, Bangko Sentral ng Pilipinas; Mr. Jonathan Ravelas, Senior Adviser, Reyes Tacandong & Company; Dr. Jesus Aranza, Chairman, Federation of Philippine Industries; Mr. Eduardo Francisco, President BDO Capital & Investment Corporation; Atty. Paul Vincent Anover, Assistant Secretary of Labor & Employment, among others.  After looking at the data presented and listening to the views expressed by these experts, my expectations of what are in store for 2024 have been enriched.  The following are my forecasts for the whole year of 2024 that take into account what I heard from my fellow panelists, without attributing any specific input from anyone of them.

           With one exception, most of them agreed that 2024 will see GDP grow at a rate faster than in 2023, which was at 5.6%.  The reasons cited, with which I wholly agree, are slowing inflation (though still above 4 % because of higher food prices brought about by El Nino and higher import prices of grains and oil); strong domestic tourism fueling an acceleration in consumer spending; more activism at the LGU level, partly because of the coming elections; continuing growth of OFW remittances (at 3 to 5%); sustained improvement in labor market conditions (lower unemployment rate) and greater involvement of private industry in the upskilling and reskilling of workers, especially in the area of digitalization; and continuing robustness in the BPO-IT sector (which is reaching the level of OFW foreign exchange earnings at $40 billion annually).  It is significant that these two account for some 18% of GDP and are both a strong support for the consumption sector.  There are more than 10 million OFWs and 1.7 million BPO-IT well paid workers.  All these positive factors lead me to forecast GDP growth in 2024 at the 6.0 to 6.5% range.  This year will be the start of recovery from the GDP loss that resulted from the pandemic.  As reported by one of the speakers, we saw real GDP per capita recover to its 2019 level in 2023. If we sustain a growth rate of more than 6 % for the next two years, we shall become a high-middle income economy by the beginning of 2026.

All the speakers expected a global slowdown in 2024 as a result of the regional wars going on in Europe and the Middle East.  It is logical that all were expecting a slowdown in our exports.  As has happened in all the three global economic crises in the last twenty years or so (East Asian financial crisis in 1997, the Great Recession in 2008 to 2012, and the COVID-19 pandemic in 2020 to 2021), the Philippine economy is one of the least negatively affected because of its low export-to-GDP ratio.  The year 2024 will again see the Philippine economy defying global recessionary trends by relying on its large domestic market of 115 million consumers, the vast majority still below 30.  It will continue to  not only more fully employ its young labor force but also export more human resources to the ageing nations like Japan, Canada and all of Western Europe, especially in the health, hospitality and IT sectors. 

On the fiscal front, the Government will continue to cope with larger fiscal deficits and a high debt-to-GDP ratio.  This will make it more difficult for the public sector to continue the Build, Build, Build program started during the Duterte Administration that was successful in bringing up the percentage of  public construction to GDP at the 5 to 6 % range.  The Government will have to rely more on Public Private Partnership (PPP) projects, especially in the building of bridges, airports, energy and water facilities.  Fortunately, Congress just passed a law improving the ease with which PPP can be implemented.  It is also highly possible that at least a part of the billions of dollars of pledges and promises to invest in the Philippines which the President has been obtaining from foreign companies (especially from the U.S., Japan, Australia and some European countries) in his many trips abroad will actually result in foreign equity flowing in.  The year 2024 is within the usual three-year period that it takes from pledges to actual projects being initiated.  The President started his aggressive campaign to attract FDIs immediately after he was proclaimed President in July 2022.  It is providential that the Public Service Act was amended at the end of the Duterte Administration.  This law paved the way for foreigners to own as much as 100% equity in practically all vital infrastructures.  In the foreign road shows organized by the private sector that I have been joining, I have seen first-hand evidence that there is keen interest among foreign infrastructure companies to invest in the Philippines, especially in renewable energy, airports, bridges, railways, water facilities and large-scale agribusiness ventures.  This view of mine has been reinforced by the recent visit of a good number of U.S. investors organized for the first time in history by the U.S. President himself.

On the foreign exchange front, the U.S. dollar will continue to reign supreme for        any more years (one of the speakers actually said for at least the next fifty years). Since            the U.S. Federal System is still encountering difficulties in bringing down inflation, U.S. interest rates will continue to be high, forcing our own monetary authorities to postpone any reduction of policy interest rate. This will continue to make it difficult for local business to raise debt capital, making it more necessary to attract FDIs.  Since exports are expected to slow down with the global            recession while the import bill may increase because of higher prices of oil and commodities, there will be pressure on the trade balance.  Fortunately, the strong performances of the OFW and BPO-IT sectors will prevent any serious depreciation of the peso.  Although there are forecasts of an exchange rate of 54 to 55 pesos to a U.S. dollar, I am betting on a range of 56 to 57 pesos to a US dollar by the end of the year. To be continued.