Flor G. Tarriela l November 3, 2022 l Manila Bulletin
Despite the challenges of higher interest rate, inflation and a weaker Peso, the country has a lot to be thankful for. For example, the peaceful transition to a new Philippine President demonstrated the stability of our political system. The “benign” stage of the COVID pandemic, removing mobility restrictions in our daily lives. Consequently, the country’s Gross Domestic Product (GDP) the broadest measure of an economy’s health, expanded by 7.8% in the first half of 2022.
Banks and corporations have entered the “budgeting season, and while it is difficult to plan with so many uncertainties, “if we fail to plan, we plan to fail.” Alvin Arogo, Head of Research & Economist at Philippine National Bank, and recognized by Asiamoney as the Best for Investment Research in the Philippines during its 2022 and 2021 Private Banking Awards, shared the following to get a better sense of the current economic situation and what’s in store for us next year:
“The country’s overall economic output likely returned to the pre-pandemic level in the third quarter of this year. driven by the shift in the government’s policy from lockdowns to now ‘live with the virus’. This approach has worked as the economy is poised to fully recover while severe illnesses and deaths due to COVID are kept at a minimum. However, from a possible GDP growth of 6.8% in 2022, economic expansion would likely be slower at 5.5% in 2023. This is because household demand would be weakened by the reduction in the consumers’ purchasing power amid the rapid increase in the price of goods. Moreover, ‘revenge spending’ would likely slow down since bulk of it was deployed this year. Government expenditures would also increase minimally given that our economic managers need to be mindful of our debt-to-GDP, now at 60% about 40% in 2019.
Inflation is on an upward trend at an average of 6.5% in the third quarter, 5.5% in second quarter, and 3.4% in the first quarter. The increasing pace of price growth could continue in the fourth quarter at an average of around 7%, since the second-round effect of higher oil and other global commodities, as well as the impact of Peso depreciation, will still be felt in the near term. Even assuming there would be no new major supply shocks in 2023, inflation will remain above the 2-4% target range of the Bangko Sentral ng Pilipinas (BSP) until the first half of next year due to an unfavorable base effect. Beneficial base effect, however, would be felt in the second half of 2023, and inflation will likely be at the mid-point of the BSP’s target by the fourth quarter of next year.
Mainly because of the high domestic inflation and policy rate increases in the US, the Philippines’ key policy rate has increased this year to 4.25% from 2.00% at the end of 2021, above pre-pandemic level of 4.00%. More rate hikes expected in 2022 and the first quarter of 2023. By how much will depend on what the US Federal Reserve (Fed) would do and if BSP matches it directly. Though the inflation issues faced by the Philippines is more manageable compared with the US, the latter’s significant influence in global economic affairs means that our country’s monetary policy cannot be set in isolation. Otherwise, the Peso will be a collateral damage.
The P/$ exchange rate depreciated by as much as 16% this year, influenced by the widening of the country’s trade deficit; imports greater than exports. The US currency also became more attractive to money market investors due to the interest rate increases induced by the Fed. The good news is that the BSP has been more vocal recently in its commitment to help stabilize the peso through the use of monetary policy.”
2023 will be another challenging year. Let’s always tighten our belts and maintain a tight ship in both sunny and rainy days. The covid pandemic has improved our resiliency and ability to navigate even stormy days ahead. Christmas, the birth of Jesus, is just around the corner. Even with the uncertainties we have HOPE!
***
Ms. Tarriela was former Chairman of the Philippine National Bank. She is a former Undersecretary of Finance and the first Filipina vice-president of Citibank N.A. She is a trustee of FINEX and an Institute of Corporate Directors fellow.
A gardener and an environmentalist, she established Flor’s Garden in Antipolo, an ATI Accredited National Extension Service Provider and a DOT Accredited Agri Tourism Site.