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THE economy performed poorly versus the government’s targets, but the National Economic and Development Authority (Neda) believes it is too early to throw in the towel when it comes to the country’s growth goals for 2024.
On Wednesday, the Philippine Statistics Authority (PSA) announced that full-year GDP and fourth quarter GDP growth averaged 5.6 percent, lower than the 6 percent to 7 percent target of the government. (See: https://businessmirror.com.ph/2024/01/31/gdp-growth-in-q4-falls-short-of-target-psa/).
Socioeconomic Planning Secretary Arsenio M. Balisacan said while the Development Budget Coordination Committee (DBCC) will meet soon given the latest data, he considered it “too defeatist” to give up on the 6.5 to 7.5 percent growth target for 2024.
“We are sticking to the 6.5 to 7.5 percent for now; the DBCC will be meeting soon given this new data to assess, reassess its programs, and assumptions. But the way we see it, I don’t think that giving up your ambition this early, it’s only the first [quarter] of the year, [by saying] you want to reduce your [target], that’s too defeatist,” Balisacan said.
Balisacan said the growth in 2023 also reflected the tight monetary policy in the Philippines. The Bangko Sentral ng Pilipinas (BSP) raised key policy rates by 450 basis points since it started monetary tightening in 2022.
He said the impact of the interest rates adjustments is not felt at once. “Its longer-term effects [are felt] a few quarters down the line. That’s why this slowing down that we’re seeing is possibly the effects of several past increases in the interest rates since early last year, and in 2022,” Balisacan explained, partly in Filipino.
“When investors delay their investment because they are waiting for the interest rates to go down that, the impact of that could happen [later]; there are lag effects, so that’s one,” he added.
Risks and opportunities
BALISACAN cited considerable risks on the horizon such as El Niño and external headwinds like geopolitical tensions that could have a negative impact on the country’s economic growth.
However, Balisacan said the economy still has opportunities such as the agriculture sector, which, despite its challenges, still managed to post a growth of 1.2 percent in 2023.
The country, he added, has not lost the manufacturing sector which remains a beacon of hope in terms of creating quality jobs. The sector has the ability to create 8am to 5pm jobs that ensure higher incomes and more permanent sources of livelihoods.
“I don’t think that we have lost manufacturing. We just have to work harder to see what types of manufacturing we can still recover. We have challenges in the manufacturing sector, high cost of energy, for example,” Balisacan said. “[Energy is the] common complaint, a common issue that’s raised to us by investors, but we’re working hard to ensure that our energy is secure and affordable and also competitive for the manufacturing sector,” he added.
Balisacan also said the services sector, particularly the Information Technology-Business Process Management (IT-BPM) remains a factor for economic success.
Jobs in the IT-BPM sector are crucial, he said, because they are not similar to other kinds of employment in the services sector that offer very little productive value.
“There are also highly informal and highly unproductive employment like peddling cigarettes on the streets; that’s not the kind of job we want for our people. So we [have to] reduce those kind of types of jobs and generate those more formal sectors that will generate higher earnings opportunities,” Balisacan said.
The challenges can be addressed by “no less than massive investments” in the economy, be it in agriculture such as for warehousing, logistics, transport, and telecommunications.
Balisacan said investments should also be made in “responsible mining” such as on green metals; as well as utility services like those in water, power, energy.
Construction is another important area to invest in. In the briefing, National Statician Claire Dennis S. Mapa said public construction grew 14.7 percent in the fourth quarter and averaged 9.7 percent in 2023.
Private construction, Mapa said, grew 7.5 percent in the fourth quarter and 8.6 percent in the full year of 2023. These investments, Balisacan said, should be made in every sector of the economy and must come from both public and private investments.
“I think there’s a lot that we need to do. We have been lagging far behind…those of our neighbors but but there are other things that are working well with us, we’re an advanced service economy powered by digitalization and the Internet, talking about IT-BPM that can be harnessed to power also our industry our services, our manufacturing, our agriculture,” Balisacan said. “We need to look at these issues in an intergovernmental, whole of government, whole of society approach.”
Economists’ take
RIZAL Commercial Banking Corp. economist Michael L. Ricafort said growth could “normalize” to 5.5 to 6 percent in 2024 and the next five to 10 years. This will reflect the country’s favorable demographics/demographic sweet spot/demographic dividend or one where majority of the population of more than 110 million is already at working age since 2015.
Ricafort said the Philippines will retain its place among the fastest-growing economies in the Asean and in Asia. Before the pandemic, the Philippine economy posted an average growth of 6 percent between 2012 and 2019 due to its demographic dividend.
Meanwhile, HSBC Asean Economist Aris Dacanay expects full-year growth to average 5.3 percent in 2024. He also flagged risks to this outlook such as a stronger labor market and easing inflation. Given the recent performance of the economy, Dacanay said it is possible that the BSP could tighten policy further if upside risks in inflation emerge. Nonetheless, he said the fourth quarter inflation “print was high enough to warrant a rate hike in the February rate-setting meeting.
If inflation in first semester of 2024 continues to ease, the BSP would keep its monetary stance unchanged at 6.5 percent, Dacanay said. “We believe the BSP will only do its first rate cut at the same time as the Fed. Our baseline is for the Fed to begin its easing cycle in 2Q 2024.”
Meanwhile, Metrobank Research is retaining its 2024 full-year average GDP forecast at 6 percent on the back of decelerating inflation and interest rate cuts.
It noted that the liberalization reforms Balisacan cited, such as attracting more foreign investments and improving the quality of employment, would boost growth.
“It should be noted that the Philippines appears relatively insulated from external shocks i.e., geopolitical risks, as the sources of growth continue to be largely from domestic consumption and services as well as the bright spots seen in the recovery of tourism, OFW remittances and BPO revenues,” Metrobank Research said.
ANZ Research, meanwhile, said given the latest performance of the Philippine economy, it expects GDP growth to average 5.6 percent in 2024. This means growth will be unchanged from the 2023 data.
Given this, the think tank expects the BSP to lower its policy rate by 50 basis points in the fourth quarter of 2024.
ANZ Research said fiscal support is expected to moderate with the 2024 budget deficit projected to decline to 5.1 percent of GDP from an estimated 6.1 percent in 2023.
Meanwhile, UK-based think tank Oxford Economics said the latest GDP numbders would prompt them to raise their 2024 growth forecast. This is despite the “impact of monetary tightening that has yet to be felt in its entirety,” as well as headwinds such as slow global growth that could again make the country’s trade performance lackluster this year.
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