By Joann Villanueva

(PNA file photo)

MANILA – Following the domestic economy’s contraction due to the pandemic, the Philippine economy started this year’s first quarter with a bang after sustaining its expansion following the glitch in the third quarter of the previous year.

Growth, as measured by gross domestic product (GDP), rose by 8.2 percent year-on-year from January to March this year after 7.8 percent in the previous three months.

This is also a turn-around from the -3.8 percent same period in 2021, which is the last negative economic print for the economy since dipping to -16.9 percent in the second quarter of 2022.

The government has continued the reopening of the economy to allow it to regain its previous luster.

In the first three quarters this year, GDP growth averaged 7.77 percent, exceeding the government’s 6.5-7.5 percent full-year growth assumption. Thus, the retention of the government’s growth assumption for this year amidst the threat of recession in the world’s largest economy.

Finance Secretary Benjamin Diokno said “the worst is over” for the domestic economy, noting that “better years are expected.”

“All things considered, the Philippines did very well in 2022 – both politically and economically,” he said.

The country held its national elections last May, wherein then Presidential aspirant and now President Ferdinand R. Marcos Jr. saw a big lead over his contenders.

Economists have traced to the strong mandate that Marcos received from the people as the source of investors’ renewed confidence in the country, which, according to some sectors, was in question leading up to the elections.

Diokno said all sectors of the economy are expected to post strong expansion in 2023, led by manufacturing, which is one source of optimism given its strong recovery, and construction, partly due to the government’s increased infrastructure spending.

Job creation in the manufacturing sector rose by 10.42 percent year-on-year last October, which, Diokno said, indicated business expansion and higher capacity use.

“The expanded job creation is a sign of future growth prospects for the sector,” he said.

Employment is another bring spot for the economy after unemployment declined to 4.5 percent last October, lower than the 5.3 percent pre-pandemic.

Also, the 14.2 percent underemployment rate during the same period is lower than the 14.8 percent in January 2020.

Amidst these factors, inflation remains a sticky issue due mainly to the spikes in oil prices in the world market on account of the impact of the Russia-Ukraine war. The oil price hikes have also affected the prices of other commodities.

Oil prices even rose to around USD100 per barrel in the past months, but it has declined to around USD80 per barrel and below in recent weeks.

Last November, the rate of price increases rose to its new 14-year high of 8 percent after breaching the government’s 2-4 percent target band last April, at 4.9 percent.

Average inflation in the first 11 months this year stood at 5.6 percent.

Diokno said inflation is seen to ease in 2023 and go back to within target levels by 2024.

Earlier, Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla projected inflation to peak last month (December), citing the drop in the prices of oil in the international market.

He said inflation is seen to go back to within target levels in the second half of 2023.

Relatively, Diokno said oil prices have gone back to pre-Russia-Ukraine war period despite the worries on global demand outlook on account of the production disruptions in China, tighter global financial conditions and weak global growth outlook.

For 2023, the global economic outlook was factored into economic managers’ growth assumption for the domestic economy, thus, the reduction of the assumption to 6-7 percent from 6.5-8 percent.

“But an average GDP growth of 6.5 percent is nothing to be sneezed at: it is still one of the highest, if not the highest growth rates among ASEAN+6 economies,” Diokno said.

He attributed this outlook to, among others, the early approval of the government’s PHP5.2 trillion 2023 national budget, the adoption of the first-ever Medium-Term Fiscal Framework (MTFF) 2023-28, approval of the 2023-28 Philippine Development Plan (PDP), retention of the country’s investment grade credit ratings, stable and resilient banking system, adequate external payments position, favorable economic investments, young, English-speaking, and tech-savvy demographics, and the government’s increased spending program for infrastructure.

“As long as the country stays united and its political leaders and policymakers remain focused on economic growth, the Philippines’ future remains bright. The trajectory of its growth will make the country one of the leading economies in the Asia Pacific region,” he added.

With these developments, Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort said the domestic economy has regained its pre-pandemic performance amidst the threat of elevated inflation due to the ongoing Russia-Ukraine conflict and the expected hikes in central banks’ key rates, among others.

He said inflows from overseas Filipino workers (OFWs) are at near-record high and continue to fuel domestic demand, exports have posted monthly record-highs, manufacturing is among its pre-pandemic highs, and the government is firm on further increasing expenditures on infrastructure.

He also noted the continued growth of the business process outsourcing (BPO) sector as well as mining activities for green minerals, and the higher productivity of the agriculture, manufacturing, and tourism sectors.

The government’s revenue collections have improved and Ricafort said additional fiscal reform measures such as the Public Services Act, Retail Trade Liberalization Act and Foreign Investment Act would greatly address the increase in the government’s debt-to-GDP ratio, which rose during the pandemic because of higher funding requirements.

The Philippines’ debt-to-GDP ratio exceeded the 60 percent international threshold in the third quarter of this year and Ricafort cited the need to bring this down “to help sustain the country’s relatively favorable credit ratings at 1-3 notches above the minimum investment grade that help support confidence in the country by international investors and creditors.”

Ricafort, in turn, said introduction of more reform measures are seen to boost the employment situation in the country and in turn sustain economic recovery.

He is open to the possibility of a further increase in the national government’s debt in line with the plan to issue US dollar-denominated and peso-denominated bonds, which is part of the government’s program to finance its programs and projects.

He said the government, thus, needs “to further intensify tax revenue collections based on existing tax law, come up with new taxes/tax reform measures, increase tax rates, among others to further boost structural sources of government revenues.”

The government, he said, also needs to adopt a more disciplined spending through fiscal reform measures such as rightsizing, anti-corruption/anti-leakage/anti-wastage measures to help address the budget gap.

“New taxes and higher tax rates need to be fair, equitable, and progressive, especially targeted to those that can afford them or those from the higher income brackets or at least prevent adding burden to the poor, most vulnerable sectors, and/or those hit hard by the pandemic,” he added. (PNA)