Global headwinds

Global headwinds will cut the Philippines’ economic growth rate by at least half a percentage point (0.6 percent actually), and slow down poverty reduction considerably.

So admitted National Economic and Development Authority Director General, Economic Planning Secretary Arsenio Balisacan in a briefing Oct. 18 before the Malacañang Press Corps.

A 0.6 percent reduction in GDP growth (assuming GDP value of P24 trillion) could mean a cut in P144 billion of economic output or production. If every P500,000 could create one job, a P144 billion reduction could mean 288,000 jobs not being created.

And 288,000 people denied a job means 288,000 more people joining the ranks of the unemployed and the poor, since poverty is a question of not earning a wage to buy basic necessities.

Why? Blame the surge in consumer prices called inflation. Blame the peso devaluation.

The Philippine currency has sunk from P49.255 in end 2021 to as low as P59 to the dollar this year, a devaluation of 20 percent in just eight months.

The expectation is that the peso will finally breach the record low of P60 per dollar before the year is over.

In the meantime, President Marcos’s economic team is fighting back.

Since people and companies are converting their pesos into dollars in anticipation of a weakening Philippine currency, the administration is trying to penalize that herd thinking by—raising interest rates.

So expect interest rates to keep rising—until the peso stabilizes.

So far, the Bangko Sentral has used up about $20 billion of its once formidable $109-billion dollar reserves, trying to defend the peso.

“President BBM is mindful of the challenges,” assures Balisacan, a poverty alleviation expert as a professional economist of longstanding.

“Economic prospects remain bright as we get our priorities straight and our acts right,” he says enigmatically.

Aris concedes, however: “Sustained increases in inflation in 2022 and 2023 will cause a slowdown in our economic growth, translating into a GDP level lower by 0.6 percent in 2023 than its expected level had there been no sustained inflation shock.

“While we expect our poverty situation to improve as we continue our recovery, inflation and rising interest rate will mute this improvement.”

On Oct, 18, 2022, Press Office OIC Undersecretary Cheloy Garafil arranged a briefing by Economic Planning Secretary and NEDA Director General Arsenio Balisacan for the Malacañang Press Corps, at the New Executive Building, Malacañang.

Here is what Balisacan told the grizzled Malacañang reporters: “To better appreciate where the Philippine economy stands, please allow me to explain the recent developments in the global economy.

“Essential commodities and inputs for food value chains are experiencing substantial supply constraints.

“First, the cessation of the Russia-Ukraine conflict remains uncertain. Second, natural calamities have dampened agricultural production in many countries, including the Philippines. As a result, inflation has remained persistently high globally, driven by rapid price increases in food, transportation, and energy.

“The Philippines and our Asian neighbors are not spared from these trends—major economies in the ASEAN, such as Thailand, Singapore, Indonesia, and Malaysia, have seen their inflation rates accelerate in the past year.

“The United States has also been trying to rein in inflation at a 40-year high.

“The country’s Federal Reserve has engaged in aggressive monetary tightening, and it appears ready to continue to do so even at the expense of a recession. It has raised interest rates to slow down spending and demand for goods and services to reduce inflationary pressures.

“These developments have given rise to predictions of slowdowns or possible recessions in major developed economies and trading partners such as the United States, members of the European Union, and China.

“Recessions in our major trading partners entail weaker external demand (exports, investment, and tourism).

“Meanwhile, global supply disruptions have made our imports, including essential inputs for food production, more expensive, contributing to widening trade deficits.

“As a small, open economy, the Philippines cannot escape the effects of these global headwinds.

“The Marcos Administration is indeed mindful of these challenges. We are particularly concerned about higher inflation.

“Our analysis shows that sustained increases in inflation in 2022 and 2023 will cause a slowdown in our economic growth, translating into a GDP level lower by 0.6 percent in 2023 than its expected level had there been no sustained inflation shock.

“While we expect our poverty situation to improve as we continue our recovery, inflation and rising interest rate will mute this improvement.

“However, we expect the rise in inflation to be temporary, as it is expected to slow down and return to the medium-term target of 2 percent to 4 percent.

“We maintain that the country’s economic prospects remain bright as we get our priorities straight and our acts right.

“This outlook is borne out by the World Bank’s recently released October forecast for 2022 and 2023: It expects the Philippines to grow by 6.5% in 2022, second only to Vietnam among major ASEAN economies, and by 5.8% in 2023—again faster than Indonesia, Malaysia, and Thailand.

“Similarly, ADB and ASEAN+3 Macroeconomic Research Office (AMRO) projects Philippine economic growth to remain robust in 2022 and 2023, with the economy expected to grow by 6.5 percemnt to 6.9 percent in 2022 and 6.3 percent in 2023.

“Our employment statistics are also encouraging: the unemployment rate has fallen to 5.3 percent in August 2022 from 8.1 percent in August 2021, while the labor force participation rate rose to 66.1 [percent from 63.6 percent—an indication that the reopening of the economy is having its intended effects.

“The Marcos administration assures the Filipino people of its vigilance and steadfast commitment to monitoring and managing these risks.

“Through the Medium-Term Fiscal Program and Philippine Development Plan or PDP framed by the 8-Point Socioeconomic Agenda, we have developed a program of interventions, including critical policy and legislative priorities, to address the economy’s short-term and medium-term issues—in the next six years.

“The PDP’s targeted completion before the end of the year assures us that we will have a robust roadmap for navigating short-term challenges and uncertainties. At the same time, we are laying the groundwork for faster, more inclusive growth that generates high-quality employment to reduce poverty rapidly.

“The plan shall include measures to strengthen the economy’s foundation for more and higher-quality job creation by addressing the most binding constraints to business investment and expansion in growth drivers such as manufacturing and agriculture, tourism, IT-BPOs, construction, and the creative industries.

“In particular, the PDP contains strategic actions to quickly address constraints in our food, energy, and transportation systems.

“These actions will mitigate inflationary pressures, protect the poor and most vulnerable in society through targeted assistance, and manage the socioeconomic scarring, especially for students and MSMEs, to hasten our recovery.

“We believe we are on the right track with the right plans and policies. With your trust and our government’s greater sense of urgency, we are confident that we can weather today’s economic challenges.”

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