FINANCE Secretary Benjamin Diokno is confident the economy will continue to be robust despite the risks mostly emanating from the external front.
In a statement over the weekend, Diokno cited the country’s strengths that enabled it to weather the impact of the global health crisis since it struck in early 2020.
“The global economic outlook for 2023 to 2024 remains bleak. This is due to the compounding effects of the recent banking turmoil, high inflation, Russia-Ukraine war, and lingering impacts of the pandemic,” he said.
The International Monetary Fund forecasts world economic growth to slow down from 3.4 percent in 2022 to 2.8 percent in 2023, before slightly improving to 3.0 percent in 2024. This projection is much lower relative to pre-pandemic global output averaging 3.7 percent from 2010 to 2019.
He said the bleak global economic outlook for 2023 was largely due to the weak economic growth of some advanced and major economies – including the US, UK, Germany, Japan, and China – in the first quarter of the year.
The weak global outlook has also affected the Philippines’ near-term economic trajectory.
“But our macroeconomic fundamentals remain intact and we are poised to outperform our regional peers,” Diokno said.
The Philippine economy grew by a robust 6.4 percent in the first quarter of this year despite an uncertain global outlook and elevated inflation. This came on the heels of a record-high 7.6 percent full-year growth in 2022.
“Our growth is supported by domestic demand, which contributed 8.3 percentage points to the real GDP growth. The contribution of domestic demand is led by household consumption at 4.8 percentage points, fueled by improving labor conditions and pent-up demand. Investments or gross fixed capital formation contributed 2.6 percentage points, driven by construction,” he said.
On the fiscal side, Diokno said revenue collections for the first five months improved to P1.6 trillion pesos, up by P155.6 billion or 10.8 percent compared to the same period last year.
Unemployment also remained low in April 2023 as it settled at 4.5 percent from last year’s level of 5.7 percent. Likewise, the labor force participation rate increased to 65.1 percent or about 50.3 million Filipinos in the labor force.
Meanwhile, the underemployment rate dropped to 12.9 percent, lower than the 14 percent recorded in April last year.
Given the continued growth, improving labor conditions, and consistently strong fiscal performance, the inter-agency Development Budget Coordination Committee maintained its growth assumptions at 6 to 7 percent for 2023 and 6.5 to 8 percent for 2024 to 2028.
Meanwhile, the average inflation rate assumption for 2023 has been narrowed to 5 to 6 percent from the previous assumption range of 5 to 7 percent.
This is partly due to the consistent deceleration in headline inflation. Inflation decelerated for the fourth consecutive month, bringing headline inflation to 6.1 percent in May 2023. Year-to-date inflation stood at 7.5 percent.
Diokno also said the government’s current account deficit can be financed.
For the first quarter of 2023, the current account deficit was recorded at $4.3 billion dollars or -4.3 percent of GDP. The widened trade gap is mainly due to higher global commodity prices and strong import demand.
“This can be supported by overseas Filipinos’ cash remittances, BPO export revenues, tourism receipts, continued FDI inflows, and more than adequate liquidity buffer of international reserves. In fact, looking at the annual BOP performance, the current account deficit is seen to narrow from 4.4 percent of GDP in 2022 to 3.4 percent in 2023 and further to 3.2 percent in 2024,” Diokno said.
He also said the structural reforms to liberalize the economy and favorable prospects of the economy are expected to sustain the inflow of foreign direct investments.
“All of these give me confidence that the Philippine economy stands resilient and will continue to perform well amid a challenging global environment,” Diokno said.