What to expect in 2023, a look at the crystal ball.
The country’s GDP for 2022 will most likely hit the upper end of the government’s projected growth trajectory of 6.5%-7.5% and may not even be farfetched that this will be exceeded basing it on the YOY growth for the 3rd quarter of 7.6% (faster than the YOY 2nd quarter growth of 7.5%) and higher consumption for the 4th quarter 2022 (attributable to Christmas spending). This expansion in the economy is driven principally by the re-opening of the economy in 2022 as government lifts covid-19 restrictions enforced in the last 2 years (2022 and 2021) coupled with improve household consumption consistent higher remittance of Filipino expatriates. Take note, however, that this growth rate is coming from a lower base on the GDP value for 2021.
Will that trajectory continue through 2023? Let us consider the external environment that is impacting on the local economy.
First, and perhaps exerting the most influence on the local economy is inflation which in turn is the effect of the following extraneous factors – elevated oil price in the world market, the global supply chain disruption (brought about by the Russia-Ukraine War and the Covid-19 pandemic), and higher interest rates local (in tandem) with US (and other developed countries), precisely to control inflationary flareups.
The war in Ukraine will persist thru 2023 but “signs” of a potential peace negotiation is in the offing although the condition insisted now by Russia is at a stiff price for Ukraine (recognition by Ukraine of territories annexed by Russia) and vice versa for Ukraine (pull-out by Russia from these territories). How far can Russia sustain the war given the sanctions imposed by the western allies (of Ukraine) on its economy and key individuals? How deep is its arsenal of armaments and its ability to replenish the stock with the limited but necessary technology it can import (with the sanctions)? Does this war still have a popular support of its citizenry and bureaucracy? Answers to these questions will affect Russia’s conviction to continue with this war, and of course its ability to gain advantage vs. a determined Ukrainians (with the persuasive support of the EU and NATO allies). If the war continues without significant “wins” for Russia, then Putin’s domestic support will further wane.
On the other hand, the supply chain will progressively recover as the global economy opens amidst the virus becoming less virulent and people adapting to it. There is of course this recent worrisome development with the upsurge in cases in China. But China, with its resources and political “will,” will want to overcome this as soon as possible. At the same time, other countries are attempting to “de-couple” from China to address their own supply chain bottlenecks.
Another dire possibility is the economies of our country’s major trading partners (the US, China, EU, and Japan) going into recession principally because of higher interest rates instituted by these countries to control inflation in their respective economies. The recession as they say is inevitable if the high interest rates regime continues. What most economists are trying to ascertain is whether the recovery will be a V-shape or a U-shape path, the former being quick and the later a more prolonged one.
My own take is that global supply chain will eventually improve (within 2023), and this will ease some of the inflationary pressure it has contributed to the global economy.
On the other hand, the war in Ukraine will be a tough nut to crack as this was a provocation by geopolitics, and the “workings” of geopolitics in this part of the world is complex. Future actions taken by its principals (more of Putin rather than Zelenskyy of Ukraine) will be hard to anticipate. This war may dissipate or worsen depending on several factors. And with it goes the price of oil (up or down), the primary source of global inflation and partly on the supply chain. The war is 12 months old now and the consequences to both countries have been enormous in terms of lives and damage to infrastructure and property (more to Ukraine, who is fighting for survival). But Russia have been showing hints of war fatigue, e.g., refusal of its citizenry to mandatory enlistment, waning domestic support and dissatisfaction in the war (if posts in social media is to be given credence), Russia importing armaments from Iran, North Korea, etc.
My best bet is that despite these headwinds, the country’s economy will continue to grow, albeit at a slower pace. Inflation is expected to slowdown in 2023, further upward adjustments in rates will temper down (mimicking the US rates), and domestic consumption will continue to drive the economy. The silver lining may come with improvements in foreign investment as new sets of law deregulating restrictions in foreign investments start to kick in. And finally, the dark horse is the agricultural sector, which could surprisingly yield modest growth with government focusing on addressing structural deficiencies in the sector and the rampant smuggling.