2024 outlook

It’s a happy new year in 2024.

The Philippine economy has performed well despite a challenging economic and financial environment in 2023 beset by ongoing geopolitical tensions, imposition of trade restrictions and extreme weather events resulting in high domestic commodity prices, especially for rice and fuel.

So says Finance Secretary Benjamin E. Diokno in a yearender letter he sent me.

The Finance chief sees “an even better outlook for 2024.”

Inflation has declined. November 2023’s 4.1 percent inflation rate is almost half the 8 percent inflation rate of November 2022, leading to average 2023 inflation of 6 percent – thanks to lower prices of food, non-alcoholic beverages, transportation, hotels and restaurant food. Of course, the central bank’s inflation fixation meant a doubling of interest rates.

For the lower inflation, Diokno credits the effectiveness of aligned monetary and fiscal policies as well as the efficacy of direct measures to augment domestic supply, address logistical bottlenecks and arrest uncompetitive practices in key commodity markets.

Jobs are being created, resulting in record-low unemployment in 18 years.

There is now better and focused coordination among President Marcos Jr.’s economic managers. This could mean harmonized policies, quick action and better execution. Hopefully, investors, local and foreign, will be convinced to come, the water’s fine.

For the better outlook, Diokno credits the reconstitution of the Economic Development Group (EDG) and the creation of the Inter-Agency Committee on Inflation and Market Outlook (IAC-IMO), along with the implementation of coherent macroeconomic policies, particularly with the establishment of the Medium-Term Fiscal Framework (MTFF) and the ongoing implementation of game-changing structural reforms.

To Ben’s credit, multilateral organizations share his optimism. They expect the Philippines to be one of the fastest growing economies among the major economies in Asia in 2023 and 2024, even with the recent downward revisions in economic projections.

Per the International Monetary Fund (IMF), the Philippines is the strongest economy among the six major ASEAN nations, including Singapore, Thailand, Malaysia, Indonesia and Vietnam.

Diokno explains the strong growth is supported by an acceleration in public investment and improved external demand for the Philippines’ exports, after the country has withstood a confluence of shocks through its appropriate policy response and recent implementation of key structural reforms to stimulate exports, spur foreign investment and raise growth potential.

The World Bank too sees the Philippine economy will accelerate in 2024, driven by private consumption. WB projects the Philippines to be the fastest-growing among Asian countries in the East Asia and Pacific region in 2023, and the second-fastest in 2024.

Credit rating agencies and market analysts have confidence in the country’s macroeconomic fundamentals. The country maintained investor-grade credit ratings amid a sea of downgrades in other economies, including the US.

S&P’s stable outlook reflects its “expectation that the Philippine economy will maintain healthy growth rates and the fiscal performance will materially improve over the next 24 months.”

Fitch Ratings forecasts that the Philippines’ “growth over the medium term will be considerably stronger than the median of similarly-rated peers supported by large investments in infrastructure and reforms to foster trade and investment, including through public private partnerships (PPP).”

Moody’s asserts the country will have a “rapid economic growth relative to peers, complemented by the stabilization and eventual reversal of the deterioration in fiscal and debt metrics.”

Diokno thinks the economy will grow “close to the low end of the 6.0 to 7.0 percent growth target for 2023, despite a difficult global environment and existing domestic challenges.”

Growth, he says, “will continue to be broad-based, led by the services and industry sectors. It will be continually buoyed by robust domestic demand, supported by the further easing of inflation, lowest unemployment rate and strong inflows of remittances from overseas Filipinos (OF). The acceleration in government spending will also push growth as we expedite the implementation of catch-up plans, programs and projects, particularly on infrastructure, as prioritized in the EDG discussions.”

On the average, inflation will be at 6.0 percent in 2023, aligned with the revised 6.0 percent inflation assumption of the Development Budget Coordination Committee (DBCC) for 2023.

The government’s direct measures to mitigate the impact of lingering supply-side factors on inflation as well as its commitment to a fiscal consolidation path through the MTFF allows fiscal policy to be consistent with the monetary policy tightening of the Bangko Sentral ng Pilipinas (BSP) to mitigate inflationary pressures.

These help in reducing inflation to within the BSP target range of 2-4 percent in the first quarter of 2024, averaging at 3.7 percent for full year 2024 and at 3.2 percent in 2025. This progress is expected to yield positive influence on consumer spending and investments in the coming year and beyond.

The jobs market looks bright. The steady and low unemployment and underemployment rates underscore the continued economic momentum in our country.

In October 2023, the country recorded the lowest unemployment rate since April 2005 at 4.2 percent, same as the one recorded in November 2002.

The quality of employment also continually improved as the underemployment rate was at 11.7 percent, lower than 14.2 percent a year ago, albeit higher than 10.7 percent in the previous month.

Moreover, improvement in the quality of jobs is evidenced by longer average hours of work, greater number of wage and salary workers that have a more remunerative class of work and less unpaid family workers.

These developments, Diokno points out, show the successful initiatives of the government aimed at enhancing employment opportunities and labor conditions that resulted in a robust labor force participation.

The sustained improvement of the labor market environment, coupled with the declining inflation rate, remains as a strong driving force towards the country’s economic growth.

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