Caution and confidence in the Philippine economy: Acknowledging the strong potential of the manufacturing industry

As we near the end of 2023, it is a good time to evaluate the lessons we have learned in the past as well as look at both the long and short term in charting our nation’s course.

Caution appears to be the operative word. Things are not altogether bad, but prospects are not overly rosy, either. The Development Budget Coordination Committee (DBCC) recalibrated its growth forecast for next year to 6.5% to 7.5% (from 6.5% to 8%), even as it maintained its projections of 6% to 7% for this year.

The Philippines registered GDP growth of 5.5% in the first three quarters of the year.

Consumers appear to also be cautious. Going into the holiday season, the overall consumer confidence index for the fourth quarter of 2023 was -19%, dipping further from -9.6% in the third quarter, according to Bangko Sentral ng Pilipinas (BSP).

This weaker confidence among consumers stemmed from their concerns about the following: 1.) faster increase in the prices of goods; 2.) lower income; 3.) fewer available jobs; and, 4.) the effectiveness of government policies and programs on inflation management, public transportation, and financial assistance for low-income households.

What is significant to note, however, is that business sentiment remained upbeat.

According to the BSP, the confidence index among businesses stood at 35.9%, a slight improvement from the 35.8% realized in the third quarter. This could be attributed to the business sector’s expectations of the following: 1.) an increase in demand for goods and services during the Christmas season; 2.) sustained economic recovery to pre-pandemic levels; 3.) business expansions in the utilities, trade, financial, and hotels and restaurant subsectors; 4.) development and launch of new products and services; and, 5.) brisker consumer spending on the back of higher remittances and inbound holiday travelers, including overseas Filipino workers (OFWs).

There are, of course, remaining concerns: the ongoing conflicts in Gaza and Ukraine, elevated inflation, and higher interest rates. Nonetheless, the general mood is optimism — cautious optimism — especially since the DBCC maintained its 2025 to 2028 growth targets to between 6.5% and 8%.

Key to the attainment of our economic targets is reducing uncertainty and the impact of external variables. We saw how our vulnerability to external developments have hampered our growth. Problems encountered in the global supply chain due to the pandemic lockdowns and other global issues have caused prices to spike and fueled uncertainty in the market. Geopolitics influences investment climates, shaping the direction of nations in an interconnected world. Political tensions, trade disputes, and geopolitical shifts can introduce uncertainties that impact investor confidence and market dynamics.

Worse, even as our global trade volume is considerable, it is skewed toward imports, thus giving us a deficit instead of a surplus and benefiting other countries from which we import the goods. There is much room for improvement in exporting our products alongside producing them for the domestic market.

A study authored by Dr. Ser Percival K. Peña-Reyes and Angelica Nicolette B. Dejaresco and slated to be published by the Stratbase ADR Institute, argues that more foreign and domestic investments need to be enticed to come to the Philippines. One way to achieve this is to make the manufacturing sector more competitive.

This is possible if a consistent, stable, and strong regulatory environment is in place. Policies need to be recalibrated in order to encourage transparency and efficiency. Infrastructure needs to be improved as this will have multiplier effects in terms of investments, jobs, and income.

During last month’s Pilipinas Conference, representatives of the private sector also underscored the importance of a reasonable, stable regulatory environment in attracting and keeping investments. Transparency is an ideal component because businesses want to ensure there are no hidden costs when they set up shop in the Philippines.

In their paper, among the recommended measures by Peña-Reyes and Dejaresco are the need to support research and development and to adopt and optimize technology. Manufacturing companies need help in improving logistics, transport, and delivery services so that parts, components, and raw materials will be available as needed. This is crucial to supply their products to the next stage of the value chain at minimal cost. Reducing energy costs and ensuring uninterrupted power supply will also be beneficial to other production sectors.

The effects of these will not be felt instantly, but will sow the seeds for lasting investments in the manufacturing sector that has the potential to be a significant part of our economic landscape. Manufacturing can serve as a cornerstone of stability, providing a foundation for domestic production and reducing reliance on volatile global markets. By investing in manufacturing, the Philippines can create a robust job market, stimulate employment opportunities, contribute to enhanced productivity, narrow the income gap, and assure the next generation of Filipinos of a better quality of life.