Phl economy faces external headwinds in 2023

Financial volatility in advanced countries has been spilling over to emerging market economies, increasing the complexity of issues and challenges faced by local policymakers in these places

As the global economy shifts from bad to worse, a study released by the Philippine Institute for Development Studies on Wednesday said external headwinds will profoundly affect the local economy in 2023.

In their latest paper, senior research fellow Margarita Debuque-Gonzales, supervising research specialist John Paul Corpus, and research analyst Ramona Maria Miral said they expect more rough sailing next year as the country faces a new set of headwinds. The study cited inflation, which they said would become a global issue leading to widespread monetary tightening, which portends a broad slowdown."

The finding reverses their previous results from last year's PIDS Economic Policy Monitor, which predicted that the country would have a “rough recovery” from the Covid-19 pandemic because of intermittent quarantines and low business and consumer business confidence.

"Financial volatility in advanced countries has been spilling over to emerging market economies, increasing the complexity of issues and challenges faced by local policymakers in these places," the authors added.

However, the authors in their latest paper expected more rough sailing this year and next, as the country faces a new set of headwinds, with inflation becoming a global issue and leading to widespread monetary tightening, which portends a broad slowdown." Steering through tough times

Debuque-Gonzales and her coauthors made a list of the essential things that policymakers should consider as they try to steer the economy through tough times around the world.

The first is to keep inflation under control without hurting growth. The authors said slowing down fast inflation can be "difficult and very expensive." This means careful calibration is needed to keep the economy from stifling recovery.

The researchers also told the government to keep its finances in good shape. Still, they stressed the need to protect people at risk from the effects of the pandemic and rising prices.

"Avoiding severe exchange rate fluctuations should be a priority. However, the authors said that the appropriate response must again depend on the nature of the exchange rate shock and its impact on the monetary and financial sectors," the authors said.

Another thing is to reduce the volatility of exchange rates while keeping their flexibility.

"In an uncertain environment, financial regulators will need to stay vigilant and guard against possible threats to financial stability that could set off an adverse macro-financial feedback loop," the researchers noted.