What awaits Phl in 2023?

Last week I shared the macro global overview for 2023 of several international financial houses, but how about the home front? What awaits the Philippines?

Let’s take off from what our government economic managers are saying. In a recent presentation by the Development Budget Coordination Committee, consistent with the consensus global overview of a soft economic environment in 2023 due to the lingering, albeit decelerating, inflationary march and attendant elevated interest rates, the DBCC is projecting the economy’s growth to slow to 6-7 percent from 2022’s surprisingly robust growth of 6.5 percent to 7.5 percent. Note that our 2021 GDP growth was only at 5.6 percent. Beyond 2023, DBCC’s GDP growth forecast is a range of 6.5 to 8 percent from 2024 to 2028, respectively.

My own non-economist’s take: I think the Philippines has been extremely lucky to still achieve the now highly probable growth at the high-end estimate of 7.5 percent for 2022 despite all the externally induced shocks we have seen. So how did we achieve this growth? If you are one of the millions of vaccinated and boosted Filipinos, about 70 million at the last government count, who have chosen to cast off the shackles of Covid and have begun to adopt a “normal” post -Covid lifestyle — i.e., wearing a mask both indoors and outdoors, maintaining a safe distance and avoiding massive crowds as much as possible (unless of course it’s the UAAP Finals) — you can easily see it for yourself.

The malls are full, traffic is back to its horrendous parking lot scenarios, airports are crowded, and booking reservations to resorts are tough. All this activity obviously translates to more spending, more hiring, and more jobs. There apparently is significant consumer spending power out there. The big question is whether it is sustainable.

Is it just the pent-up proclivity to spend, socialize and enjoy that has just been given full rein? I guess we will know after a few months if the mood will peter out or will continue. Clearly, although the 2023 growth forecast is a shade slower than 2022, the forecast still represents respectable growth considering the scenario that we were facing at the height of the pandemic -induced lockdowns.

The government says inflation in 2023 will still be above pre-Covid-19’s 2.39 percent, hovering at a range of 2.5 to 4.5 percent but settling down at 2 to 4 percent from 2024 to 2028

The optimistic scenario at the macro level is not surprising since our economy spins in whichever direction the economic heavyweights go.

Some dark clouds loom, however. The government says inflation in 2023 will still be above pre-Covid-19’s 2.39 percent, hovering at a range of 2.5 to 4.5 percent but settling down at 2 to 4 percent from 2024 to 2028. I think frankly the DBCC is wildly optimistic on this one considering that in December 2022 inflation was at a hefty 8.1 percent. Empirically, particularly at the retail level, prices soar much faster on the way up compared to the much stickier path of the descent.

Unless the product is a fast-moving, widely available commodity, readily tradable, and highly price transparent, traders and sellers will always hold on if possible, to the higher prices. Case in point, the sugar, salt, rice, and of late, red onions shortage sagas. Commodities that hit all households and are certainly a significant contributor to our inflation surge. Unfortunately, the inflation pain for the lower income households will be disproportionately much more painful.

On the bright side, the recent amendments to the Public Service Act and Retail Trade Liberalization Law, the political afterglow of the peaceful change in our country’s leadership, and the stable macroeconomic environment should stimulate renewed foreign investor sentiments.

The optimistic scenario at the macro level is not surprising since our economy spins in whichever direction the economic heavyweights go and the two elephants, we are most economically dependent on, China and the US will continue in the near term to face some heavy headwinds, fortunately not of the Hurricane Katrina or typhoon “Yolanda” category. China is currently reeling from a surge of Covid-19 cases, and this will certainly slow down their momentum, whereas the US will likely experience if at all, a short and shallow recession as the Fed tries to keep a tight lid on inflation. Foreign analysts’ calls are less sanguine. The World Bank is forecasting 2023 growth to slow to 5.7 percent due to inflation and higher interest rates; Fitch is seeing 5.5 percent.

And finally, what’s the government’s call on the peso-dollar exchange rate? DBCC is projecting the peso to range from 55 to 59 in 2023 but will drift back to 53-57 from 2024 to 2028. All I can say in this regard is that it’s a far, far cry from a certain congressman’s panicky call of 65 to 68 a few months ago.

In sum, I believe 2023 will be a comfortable year for the Philippines.