Bernardo M. Villegas
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Philippine Economic Prospects for 2023 – 2024 (Part 1)

             At this time of the year, most businesses, both large and small, are in the process of preparing their budget for the coming year.  I would like to contribute to the usual economic environmental scanning required in the budgeting process by presenting the data contained in the last Mid-Year Economic Briefing given by UA&P economists headed by Dr. Victor Abola in tandem with some top officials of the Department of the Budget of the Government.  Dr. Abola heads a research group that is a partnership between UA&P and the First Metro Banking Corporation.  From the start, let me say that the forecasts of this research group are at the conservative end of a range of forecasts that have been issued by private economists.  As to be expected from a “prophet of boom” like me, my own forecast is even brighter than what I will be reporting here.  In fact, the whole presentation was entitled “BBM and PH Economy Brighter Sun.”

            Dr. Abola started citing some “dark clouds in the global horizon”, such as a possible global recession, the Russia-Ukraine war, elevated inflation and rising interest rates.  GDP growth rates will be muted with the world economy decelerating from 4.9% in 2022 to 3.6% in 2023; the U.S. from 5.2% to 2.2%; the EU from 4.3% to 2.0 %; Japan from 3.1% to 1.6%; China from 5.6% to 5.4 %; India from 8.5% to 6.6%.  The ASEAN 5 is the only region that will see an acceleration of growth from 5.8% to 6.0%. Extrapolating into the medium term, i.e. the next five years, I can foresee the ASEAN 5 leading the whole world economy in GDP growth prospects together with India.  For next year, 2024, Dr. Abola forecasts 3.0 % for the world economy; 1.1% for the U.S.; 1.4% for the Euro area; 1.0% for Japan; 4.5% for China and 4.6% for the ASEAN 5.  There is no 2024 forecast for India.  I would venture to say, however, that India will continue to lead the whole Indo-Pacific region in growth. India is now the largest country in the world population wise.

            Reason for optimism about 2024 prospects, according to Dr. Abola, are easing crude prices, despite OPEC huge cut; slower growth in wheat and industrial commodity prices; and slowdown of monetary policy tightening.  Wheat prices are expected to decline by 5.6 % and crude oil (Brent) prices at 6.3%.  As we have experienced in the last three global economic crises (East Asian financial crisis in 1997–2000); Great Recession (2008–2012) and COVID 19 pandemic (2020– 2022), the sun will continue to shine, with less clouds, for the Philippine domestic economy.    Domestic demand of a young and growing population of some 115 million will continue to drive growth.  Engines of growth will be the continuation of the Build, Build, Build program coupled with the building of millions of low cost and economic housing units.  Business and consumer confidence will continue to be on the rise as inflation is tamed by the last quarter of 2023 and unto the whole of 2024.  Fiscal space is expected to expand in 2024 as debt-to-GDP ratio has started to slowly decline from 60.9% in 2022 to 60.1% in 2023.

            Among the major infrastructure projects that are ongoing are Metro Manila Subway systems, North-South Commuter Rail, and the Davao City Coastal Road.  As highly encouraged by President BBM, Public Private Partnership (PPP) projects are the CALAX, MRT-7, LRT-7, NLEX-SLEX, South Luzon Expressway TRA, Metro Cebu Express, and Metro Cebu Expressway on which a total of P 63 billion have already been spent.  As being pushed by the Department of Housing and Urban Development, a million units of mass housing are targeted annually to address the backlog of 6 million units.  Seed money of P500 billion will be made available coupled with the creation of Fannie Mae type of secondary mortgage that can be accessed by local government units.

            Consumer spending will continue to be the main engine of growth at the demand side.  Especially helpful at the consumer side are the record levels of employment  of 49.1 million workers; cut in personal income tax among the lower-income groups whose propensity to consume is the highest; the expected 3 to 4% depreciation of the peso that will benefit the relatives of the OFWs who are expected to send some $38 billion for the whole year; and improving consumer confidence for the second half of 2023 as inflation is brought down below 4%.  The bad news is that the balance of trade deficits will remain elevated as exports slow down while imports grow faster towards the end of the year as inventories are built up for the holiday season, especially considering that Christmas always starts in the Philippines by early September (ask Josemari Chan!).  Those who tend to over worry can focus on the low probability that food inflation will continue to linger, China may invade Taiwan and there will be a global economic meltdown.  All these can be summarized in a few forecast figures.  The whole year inflation will average 5.5%; the peso-dollar rate will be at P57 to P59; Gross International Reserves will settle at   $102 billion; GDP growth rate will be at 6.1%; the industry sector will  grow at 6.2% and services sector at 6.7 %.

            The forecasts of Dr. Abola were complemented by presentations of two top officials of the Department of Budget and Management, Dr. Joselito R. Basilio and Dr. Romeo Balanquit.  These two officials went beyond a short-term forecast to a presentation of the medium-term fiscal framework for the 2022 to 2028 period coinciding with the term of President BBM.  Over the next five years, business people have no alternative but to monitor geopolitical risks such as the conflict between Russia and Ukraine which has resulted in supply chain disruptions explaining the high inflation rates the beginning of 2023.   Also a challenge to economic recovery is the tightening of financial conditions leading to rising interest rates both domestically and abroad.  There is still the lingering fear that there could be a resurgence of the COVID-19 global infection as mobility has increased and eased restrictions could cause spikes to occur.  Finally, there are the perennial risks besetting the Philippines making the population vulnerable to extreme weather conditions such as typhoons and droughts which can cause serious economic losses, especially in the already beleaguered  agricultural sector.  To be continued.