A promising outlook, despite some pitfalls
THE Manila Times’ Midyear Economic Forum is being held today, and this year’s event carries the theme, “Inspiring optimism, stimulating growth.” We believe that is an appropriate theme. There is a great deal about the Philippines’ economy that should inspire optimism as the year reaches its halfway mark and the prospects look good for continuing robust growth for the second half of the year. To mark the occasion of our forum and perhaps stimulate further conversation about the state and direction of the economy, we would like to offer our outlook for the remainder of 2024 and beyond.
In terms of broad economic performance according to the benchmark indicator of annual gross domestic product (GDP) growth, we share the consensus view of most institutional and private-sector analysts that growth will probably fall short of the government’s aspirational targets and finish the year at just slightly below 6.0 percent. Apart from purely economic indicators that have not been as positive as everyone hoped, such as inflation, interest rates, and credit and wage growth, the slight underperformance can also be attributed to factors such as the extended El Niño-induced drought, which, in fact, has not yet ended. Even so, the annual GDP growth, if it reaches 5.8 or 5.9 percent as we anticipate, will still be a respectable performance and one of the more robust results in the region.
Inflation has been a key concern for the past two years, and while it has improved substantially, having remained below the 4.0-percent upper limit of the government’s target range for two months in a row, we agree with the Bangko Sentral ng Pilipinas (BSP) forecast that this is probably as good as can be managed this year. The BSP has a full-year forecast of 3.8 percent; inflation may, in fact, end the year slightly higher than that, given persistent pressure on food and energy prices.
The persistent weakness of the peso is another concern; the BSP has said this is temporary, but we are not entirely confident that is true. The peso has remained at or above P58 to $1 for more than a month and well above P55 to $1 for most of the past year. While this is seen as an advantage for exporters and those whose household incomes are based on dollar-denominated remittances, it has the much larger disadvantage of putting upward pressure on inflation and making the government’s debt servicing more costly. There are factors such as easing inflation in the advanced economies that suggest the peso could strengthen as the year progresses. On the other hand, there are no indications at this time of factors that could cause it to strengthen dramatically, and put it back into the P54-P55 range that seems more productive.
Naturally, any forecast is subject to risks. Many of the risks faced by the economy, such as the impact of climate change, conflict in other parts of the world, and major political developments such as the upcoming US elections, are entirely out of the country’s control, so we will take note of some that can be addressed. Red tape is still a pressing problem and likely the biggest obstacle to business growth; besides inefficiency and lingering corruption in day-to-day processes, we include the noticeable lack of alacrity in legislative and regulatory work in this as well.
In part due to persistent red tape and flaws in legal processes, infrastructure development has slowed in a concerning way despite the perception created by the announcements of numerous large-scale projects. As just one example, the construction of the new MRT-7 line between Quezon City and Bulacan has been derailed by resistance from property owners in San Jose del Monte, pushing back the anticipated completion of the full project to at least 2027, or six years beyond its original target date. Similarly, the National Grid Corp. of the Philippines (NGCP) has faced numerous interruptions to its projects due to contest rights-of-way, something that should have been avoidable.
Digitalization efforts, both within the government and in terms of expanding online commerce and financial inclusion, are proceeding but could be much improved, along with defenses against cybercrime, which seems to be reaching crisis levels.
Finally, one of the biggest risks to economic performance this year, albeit a temporary one, is the risk that progress will be interrupted by political chaos ahead of next year’s elections, for which the campaigns will begin in earnest in October. Much will be riding on the Comelec’s ability to keep things under control.