Economy humming under PBBM — AMRO
Despite some moderation in 2023, inflation remained high, at a level above the 2 percent to 4 percent target, driven by buoyant demand
Daily TribuneDespite some moderation in 2023, inflation remained high, at a level above the 2 percent to 4 percent target, driven by buoyant demand
Despite the challenges of spiraling prices resulting to a 5.3 percent inflation in August from the 4.7 percent recorded in the previous month, economic experts maintained that the economy is on strong footing under the charge of President Ferdinand "Bongbong" Marcos Jr.
Growth was supported by resilient domestic demand with a strong recovery in the labor market despite weaker external demand, according to the ASEAN+3 Macroeconomic Research Office, or AMRO.
AMRO held its Annual Consultation Visit to the Philippines from 29 August to 8 September.
According to the report, the economy maintained its robust momentum in the first half following a multi-decade high growth rate of 7.6 percent in 2022.
It added that notwithstanding a widening current account deficit, the external position remains sound with sufficient international reserve buffer and low external debt.
Despite some moderation in 2023, inflation remained high, at a level above the 2 percent to 4 percent target, driven by buoyant demand, the report indicated.
Favorable outlook
"Economic growth is projected to moderate to 5.9 percent in 2023 due to high base effects and weaker external demand, before edging up to 6.5 percent in 2024 as external demand recovers," AMRO group head and principal economist Runchana Pongsaparn said.
"Meanwhile, domestic demand is expected to remain robust supported by continued improvement in labor market conditions, lower inflation, robust overseas remittances, and higher government infrastructure spending."
Headline inflation is projected to moderate to 5.5 percent in 2023 from 5.8 percent in 2022, and slow further to 3.8 percent in 2024.
Despite some moderation, inflationary pressure will likely remain elevated as reflected in the high level of core inflation, due to a positive output gap and the second-round effects induced by increases in the minimum wages and expectations of persistently high inflation.
Favorable indicators
Other positive factors cited in the report include:
Scar effects linger
AMRO, however, warned that the outlook is clouded by risk factors and challenges.
In the short term, the economy could be adversely affected by high inflation, especially due to local supply shocks in the food sector, the report added.
An economic slowdown in major trading partners and volatility in the global financial market, along with tighter financial conditions, also pose risks.
The long-term growth potential is largely affected by the scarring effects of the pandemic, the pace of infrastructure development, geopolitical risks, and the economic losses from natural disasters, which are being exacerbated by climate change.
The Bangko Sentral ng Pilipinas, or BSP, tightened monetary policy aggressively to address rising inflation. Policy interest rate was raised by a cumulative 425 basis points, or bps, between May 2022 and March 2023. The 2024 budget aims to continue to reduce the budget shortfall, guided by the medium-term fiscal framework.
Complementary tacks
Tightened monetary policy and contractionary fiscal stance is an appropriate policy mix amid a positive output gap and persistent inflationary pressure.
The "all-of-government approach" against inflation is welcomed as it addresses the supply side problems.
Macroprudential tools can be used actively to address potential financial stability issues.
The report added in the medium to long term, budget policy should balance between restoring fiscal buffer and supporting sustainable growth and development.
Based on the report, fiscal consolidation is supported by strong commitment and well-defined targets and measures, anchored by fiscal rules and discipline.
On the financial system side, close coordination between regulators is crucial in identifying, monitoring and mitigating financial stability risks.
Meanwhile, the authorities should continue to improve the liquidity management framework, develop the bond and repo markets, and continue to expand financial inclusion, to enhance the system's resilience to shocks and promote market activities.
To do list
The report said a comprehensive strategy is warranted to bolster the medium- to long-term economic growth potential.
Overcoming the scarring effects of the pandemic mandates a sustained focus on upgrading and upskilling the workforce to embrace a more technology-driven economy, it added.
Implementation of policies and measures to attract investments, particularly foreign investments, and promote exports of both goods and services are the underpinnings of long-term economic development, the report added.
Furthermore, the government can enhance the country's competitiveness through infrastructure investment, digitalization, and developing a green economy.
