OPINION
Jonathan L. Ravelas
There are several variations on the exact wording, mostly attributed to British statesmen. Joseph Chamberlain, in a speech to Parliament in 1898, said: “I think that you will all agree that we are living in most interesting times.”
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Indeed, we are living in interesting times. Living through and getting out of the COVID-19 pandemic amid a Russia-Ukraine conflict and increasing tensions between the US and China over Taiwan. If this is not challenge enough, let’s add the “sticky” global inflation and global monetary tightening to the pot. So, how will this affect our economy and the markets? Looking at the latest data, the economy grew at a softer pace at 6.40 percent in Q1 2023. The moderation was driven by plunging exports amid the global economic downturn and the slump in the global tech sector as well as softer private spending growth due to the higher inflation and interest rates. That said, stronger expansion in fixed investment and public spending prevented a larger deterioration in GDP growth. In Q2, economic activity is likely similar to Q1 2023. In May, the manufacturing sector PMI improved from an eight month-low due to the slight easing of inflation and interest rates. In 2023, GDP growth should ease to 6.00 percent and in 2024, 5.8 percent due to softening domestic demand amid higher interest rates and sticky inflation. That said, the economy remains one of the strongest in ASEAN, boosted by China’s reopening, higher remittances and public infrastructure projects. A fragile global economy and lagging structural reforms cloud the outlook, however.
In April, inflation subsided further to 6.1
percent on cooling price pressures for food,
housing and utilities. Our panel sees the
headline rate easing from current levels by Q4
2023 but averaging marginally higher this year
than in 2022. Lower commodity prices and
government subsidies should keep inflationary
pressures in check. Currency weakness is an
upside risk. I still see consumer prices rising
6.10 percent on average in 2023, before slowing
to 4.1 percent on average in 2024.
The Bangko Sentral ng Pilipinas (BSP) kept
its key policy rate at 6.25 percent. The move
came on the heels of a 25 basis-point increase
in March and was underpinned by looming
concerns over economic growth.
With inflation declining in the last four months, the BSP is set to take a pause in June.
An insurance hike in BSP key rate is still expected before the end of the year. I see the key policy rate ending 2023 at 6.50 percent and “
ending 2024 at 5.50 percent.
The Philippine peso traded at P55.860
against the US dollar on June 16, appreciating
0.42 percent month-on-month. Stronger-than-
expected GDP data supported the currency
as well as the weaker performance of the
greenback. This year, the peso is regaining some
ground against the greenback, on a narrowing
current-account shortfall and an anticipation
that the US Fed is at the end of its tightening
cycle. I expect the peso ending 2023 at P58.00
and ending 2024 at P57.00.
By these numbers, we can say that the recovery
is underway and progressing well. However,
the road ahead is lined with challenges: a
global economy that is heading to a recession
complicated by rising geopolitical tensions.
The good thing is our economy is domestic
consumption-based. Consumers welcome the
recent improvements in inflation. Despite these
developments, it failed to impress investors.
Given the global landscape, the country needs
to balance its fiscal consolidation strategies and
speed up infrastructure spending to sustain
the growth momentum. I believe this is what
investors are looking for.
In 2023, GDP growth should ease to 6.00 percent
and in 2024, 5.8 percent due to softening domestic demand amid higher interest rates and sticky inflation. That said, the economy remains one of the strongest in ASEAN, boosted by China’s reopening, higher remittances and public infrastructure projects.
The author is managing director of eManagement for Business and Marketing Services. He is one of the country’s leading analysts and his 25-year career spans roles in various capacities in the financial services industry.
