Ponderables and Imponderables
Business planners by this time already have their own basic assumptions on how the Philippine economy would perform this year. They have their own macro-economic targets, guided by the set of goals forecast by government planners.
But economic and business planning is a dynamic exercise. No targets are set in stone—there are ponderables and imponderables that one may expect or not. And they include the geopolitical situations in other parts of the world that could throw a monkey wrench in the works.
Russia invaded Ukraine in late February last year, disrupting the global supply chain that caused world oil prices to surge to over $120 per barrel in the ensuing months. The war set off a chain of events that jolted the global financial markets. Soaring oil prices along with the break in the supply chain of wheat and corn led to high inflation in most of the world, which in turn prompted central banks across the globe to increase interest rates.
Exchange rate targets went awry—the peso flirted with the 60:$1 level briefly late last year following the big rate adjustments of the US Federal Reserve. Suddenly, the cost assumptions of many companies were way off target.
Higher inflation and interest rates are the basic recipes for recession. The United States and most of Europe are now preparing for a recession or an economic slowdown in the aftermath of the war and higher inflation. The recent surge in Covid-19 cases in China is compounding the problems of the global economy.
The Philippines, however, may be luckier than many nations. It has weathered soaring inflation and elevated interest rates. Daily Covid-19 cases have gone down below 1,000 in the last few days of December. The Philippine economy, in fact, expanded 7.6 percent in the third quarter despite rising interest rates, higher inflation and the geopolitical tensions in Eastern Europe. Our economy grew 7.7 percent in the first three quarters of 2022, exceeding the target range of 6.5 percent to 7.5 percent set by the government. The last time the economy expanded 7.7 percent in the first three quarters was in 2010.
The Philippines is not insulated from the global recession but I am confident of a solid economic growth this year. The holiday spending and the hectic pace of travel that we saw in December last year attest to a strong economic performance in the fourth quarter.
I fully agree with the assessment of Finance Secretary Benjamin Diokno on the Philippine economy. The worst is over for the economy as Filipino consumers went to the malls in droves to shop and dine in restaurants during the holidays. Many traveled to the provinces to celebrate Christmas and the New Year. Consumer spending is back with a vengeance.
We have survived the impact of Russia’s invasion of Ukraine and the peso is back on the 56:$1 territory. I see a resilient Philippine economy this year, with domestic demand as the chief growth driver.
We have seen positive economic indicators during the fourth quarter that will sustain Philippine economic growth. The S&P Global Philippines PMI, for one, has mostly been on an expansion mode, hitting 52.7 percent index points in November. Jobs in the manufacturing sector rose 10.4 percent year-on-year in October as higher sales signaled business expansions and higher capacity use. The unemployment rate, meanwhile, dropped to 4.5 percent in October, down from 5.3 percent during the pre-pandemic period.
I am confident that the improving labor market, the recovery of the manufacturing sector and President Marcos’ push for bigger infrastructure spending will drive economic expansion this year. The stable political situation and the strong mandate received by President Marcos in the May elections are contributing to better economic prospects this year.
A more business-friendly environment also augurs well for the Philippines. Recently-enacted economic reforms like the amendments to the Public Service Act that encourage foreign investors to join in power, telecommunications, airports and other infrastructure projects with 100-percent equity will spur more businesses to open and create more employment opportunities.
And as I mentioned earlier in my previous columns, the Philippine economy has room for growth. The economic reopening, along with the full resumption of face-to-face classes, is bearing fruits. I am confident the Philippines will again survive the imponderables in 2023.