Bernardo M. Villegas
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Who’s Afraid of the Global Recession?

             The Philippine economy will slow down only very slightly in 2023.  From over 7.0% in 2022, we can still expect at least 6.5 % or more in the New Year.  Those who are fretting about a large deceleration remind me of the prophets of doom in 1997 during the East Asian Financial crisis or during the Great Recession that followed the collapse of Lehman Brothers and other large banks and corporate groups in 2008, and not to mention those who saw OFW remittances plunging to very low levels during the height of the pandemic in 2020.  The year after 1997, countries like Indonesia, Thailand, Malaysia and other East Asian economies experienced GDP declines of anywhere from 5 to 13%.  The Philippines (then still known as the “Sick Man of Asia”) suffered only a -0.5 % decline.  In 2009, when there were many countries both in Asia and other parts of the world suffering from GDP decreases, the Philippines surprised everyone with an increase of 2%.   In 2020, the usual pessimists predicted a catastrophic fall of remittances from OFWs as they witnessed some 400,000 Filipino overseas workers being repatriated because they lost their jobs abroad, especially in the Middle East.  Guess what was the decline in total OFW remittances that year: less than 1%.

            In fact, I am just being conservative when I provide for the possibility of a slight slowdown.  It is still possible that we can still grow at 7% in 2023 as OFWs repeat what they did in 2020:  become extra generous in dipping into their savings to send more money to their relatives as they watch them coping with a high rate of inflation of 5 % or more during the first half of 2023.  That’s exactly what happened in 2020 when there was hardly a drop in OFW remittances despite a significant decrease of employment abroad.  The remaining OFWs just increased their average remittances.  This increase in OFW contributions to the finances of their families left at home may actually counteract the impact of higher inflation in 2023 so that consumption can continue to be the main engine of growth, especially in such categories as domestic tourism, dining out, entertainment, and informal and non-formal education.  An increased labor participation rate, higher rate of employment, with 4.6 million new jobs created last October 2022, also augur well for consumption continuing to be bullish. 

            Also a very dependable source of purchasing power for local consumers is the BPO-IT sector that in 2023 may be earning some $34 billion in foreign exchange earnings.  There are some 1.4 million well paid workers benefiting from this truly sunrise industry that is projected to add another one million workers in the next five years, bringing total earnings to more than $50 billion.  The households of these workers, coupled with the relatives of the OFWS, constitute the bulk of what the economy will become in the next two years:  a high-middle income economy as  our GDP per capita crosses the $4,000 threshold. High-middle income households are more resilient in times of higher inflation and can be expected to defend their consumption levels.  Besides, because of a very close coordination between our monetary and fiscal managers, inflation in 2023 is expected to be brought down by the middle of the year to the targeted 2 to 4% of the monetary authorities.  Contributing to the deceleration in the inflation rate (which reached more than 8% in December 2022) is the softening of global oil prices to the levels before the Russians invaded Ukraine last February 2022 (about $80 a barrel) thanks to the lower demand for oil resulting from the slowdown of the Chinese economy and the ongoing global recession affecting the developed countries of Europe and North America.

            As Secretary Benjamin Diokno recently reported, the manufacturing sector is another source of optimism about the prospects of insulating the Philippines from the expected world-wide recession.  Again, thanks to the huge domestic market manufacturing has been on a roll.  The S&P Global Philippines PMI (Purchasing Managers’ Index) has been systematically on an expansion mode, reaching 52.7 percent index points last November, with jobs in manufacturing increasing by 10.42 per cent in October 2022 year on year in response to higher sales, especially after the lockdowns were lifted.  For professional and leisure reasons, I have traveled to key tourism destinations such as Boracay, Palawan and Pagudpud in the last month or so and have seen for myself that revenge traveling is a reality that will spill over to the whole of next year whatever happens to the rest of the world and despite higher inflation.

            The moderation of the depreciation of the peso (expected to be between P56 to P57 to a U.S. dollar in the coming months (far from the alarmist prediction of P60 to $1 earlier in 2022) has had a soothing effect on consumers.  Adding strength to consumption expenditure will be the capital expenditures coming from continuing infrastructure spending from the Government and private sector enterprises engaged in Public Private Partnership (PPP) projects.  It is worth noting that we have seen the early approval of the 2023 national budget; the early adoption of the first-ever “Medium-Term Fiscal Framework”; the swift approval of the Philippine Development Plan 2023 to 2028; the continuing investment grade of the country’s credit standing; and the very low Non-Performing Loan ratios of the banks.  Also contributing to a bullish construction sector is the plan of the Department of Housing and Urban Development to construct 1 million units of socialized housing for the whole of 2023, in partnership with some of the private real estate developers.

            Despite misgivings about the inability of some LGUs to make productive use of the added incomes that they will receive from the National Government as a result of the Mandanas-Garcia ruling, I am encouraged by what I see in a number of very progressive provinces and cities  led by competent and honest   LGU heads such as Batangas, Bataan, La Union,  Palawan, Ilocos Norte, Pasig City, Makati City,  Quezon City, Iloilo City and a few others who have done their homework in coming out with their own respective medium-term strategic plans that have laid out very concrete projects and programs on which they will be spending both their usual recurring incomes and the bonanza they will get from the Mandanas-Garcia ruling so that we can be sure that there will be increased public sector spending coming from the LGU levels, stimulating further the local economy.

            I have not even included in these reckonings the possible inflow of more than $10 billion of FDIs (already reached in 2021) as a result of the amendment of the Public Service Act allowing foreigners to own as much as 100 % of airports, seaports, railways, subways, telecom facilities, renewable energy plants, etc.  Encouraged by the example of President Marcos Jr., who is all over the place, promoting foreign investments in his travels abroad, I am personally planning to resume the many road shows I joined over the last twenty years in key cities of North America, Europe and Northeast Asia to promote investments in the Philippines.  In these road shows, I will be joined by top executives of large conglomerates, medium-scale entrepreneurs, LGU heads and some national government officials—and assisted ably by the Philippine Ambassadors assigned to the countries we shall be visiting.  I will not be just a bystander but, as before, an active promoter of foreign investments in our country, that together with Vietnam and India, are being touted as the fastest growing countries in the world today.  For comments, my email address is