‘Imported’ risk clouds 2023     

The enactment of the national budget for 2023 has stirred a sense of optimism among economic managers about prospects for the coming year. Finance Secretary Benjamin Diokno notes that the record-time passage of the P5.268-trillion budget, which was signed by President Marcos Jr. last Friday, will enable agencies to start implementing their programs and projects as early as January 2023. This, he notes, is especially critical for infrastructure departments such as the public works and transportation departments since construction is best done during the first six months of the year.

Sen. Sonny Angara, chair of the Senate committee on finance, also highlights the allocations in the budget that will sustain government initiatives such as the Pantawid Pamilyang Pilipino Program, medical programs, free public transport, and scholarships, among others. “We also expect that the government can address the continuous rise of prices of goods, particularly vegetables, chicken, and pork. A big part of the 2023 [budget], more than P170 billion, will go to the agricultural sector, with the President overseeing it,” he adds.

Some local economists are also not as pessimistic as their foreign counterparts about 2023. The Philippine economy will likely avoid a recession in 2023 as “lagging sectors” will help push growth to 5.6 percent next year, predicts Bank of the Philippine Islands lead economist Jun Neri, pointing out that sectors such as arts and entertainment, restaurants, hotels, transportation, and construction are among those that have yet to reap the full benefits of the post-pandemic business resurgence. The continued increase in the money sent home by overseas Filipino workers (OFWs) supports projections that consumer spending will continue to be robust next year. Latest data from the Bangko Sentral ng Pilipinas (BSP) released last week show that remittances rose by 3.5 percent in October. For the first 10 months of the year, remittances were up by 3.1 percent to $26.74 billion. High inflation may contribute to the increasing amount of money sent home by OFWs as their families here will need more money to cope with rising prices.

However, the results of the BSP quarterly survey of consumers and business owners released last week reflect the general uneasiness about 2023. The consumer confidence index was at a negative 14.6 percent, its 10th straight quarter of pessimism since the -54.5 percent in the third quarter of 2020, when the country was locked down due to the COVID-19 pandemic. The business confidence index stayed positive, but fell to 23.9 percent from 26.1 percent in the prior quarter. Consumers are less upbeat about their long-term outlook, citing “higher increase in prices of goods, low income, higher household expenses, and fewer available jobs” for their pessimism. The Asian Development Bank expects Philippine economic growth in 2023 to be lower at 6 percent from 6.3 percent previously, which Kelly Bird, the lender’s country director for the Philippines, says is due to risks that include inflation stickiness, further increases in interest rates, and a sharper-than-expected slowdown in GDP growth in advanced countries.

What this indicates is that the biggest risk for 2023 is not internal, but “imported.” Russia’s invasion of Ukraine early this year has led food and energy prices soaring around the globe, causing inflation to surge to its fastest in decades in many countries. This has become the biggest challenge to monetary authorities, which have all been raising interest rates worldwide to address rising prices. High-interest rates have the effect of dampening consumer spending as the cost of borrowing goes up. This, in turn, will slow down inflation as demand for goods and services declines. Inflation in the Philippines rose to a 14-year high of 8 percent in November. For the January-to-November period, inflation averaged 5.6 percent, breaching the government’s target of 2-4 percent. As a result, the BSP has raised its benchmark rates by a total of 2.25 percentage points so far this year, bringing the policy rate to 4.25 percent. And the increases are not ending soon. BSP governor Felipe M. Medalla notes that the likelihood that the central bank will not increase its policy rates at its next meetings was “extremely low.” The central bank forecasts inflation to be back to the 2-4 percent range in the second half of next year. “We have to do more (rate hikes) to make sure that happens,” Medalla tells Bloomberg TV.

While the economic outlook for 2023 may not be that rosy, the government will at least not be constrained by the absence of an approved budget as it undertakes social programs for 2023 to help the marginalized sectors survive. There is also the continued inflow of money from the more than 10 million Filipinos abroad. All these will hopefully help keep the Philippines afloat as the global economy finds its bearing, tames inflation, and goes back to a healthy growth path.