MANILA, Philippines—While saying the Philippines is far from getting hit by stagflation—a lethal mix of recession and inflation—the government’s new chief economist on Monday (July 4) conceded that the country may suffer a delay in hitting its target of reaching high-income status by 2040 largely because of pandemic-induced socioeconomic scarring.
In a report also on Monday, think tank Japan Center for Economic Research (JCER) said economists watching the Philippines flagged high inflation and a weak peso to be among the top risks to the economy in the next 12 months.
Socioeconomic Planning Secretary Arsenio Balisacan told a press briefing that while the US and Europe may fall into a recession or economic contraction, the Marcos administration expects Philippine economic growth of 6.5 to 8 percent yearly in the next six years. “If we can achieve that, that will be spectacular.”
For this year, gross domestic product (GDP) growth of 6 to 7 percent “will be remarkable and will remain among the fastest in Asia,” said Balisacan, who heads the state planning agency National Economic and Development Authority (Neda).
However, Balisacan conceded that the downscaled 7 to 8 percent GDP growth target for 2022 by the Duterte administration’s economic team “might be a big challenge” considering external disruptions triggered by Russia’s invasion of Ukraine, which raised commodity prices and hampered global trade.
Balisacan said that since high prices were a “threat,” President Ferdinand Marcos Jr.’s economic managers—belonging to the Cabinet-level Development Budget Coordination Committee (DBCC)—will meet on Friday (July 8) to revisit macroeconomic targets and assumptions.
In its report, JCER said that while economists raised their consensus GDP growth forecasts for the Philippines for 2022 to an average of 6.6 percent from 6.3 percent previously, they said inflation, like elsewhere in Asean, was the No. 1 risk to economic recovery. “Most economists are optimistic on the Philippine economy, which began reopening in February” but “amid the Ukraine crisis, inflation acceleration or asset bubbles became the top risk,” JCER said.
The other top economic risks identified by economists for the Philippines included rising commodity prices, plus depreciation of the peso.
While political risk had figured in JCER’s previous quarterly surveys on the Philippines, the think tank said it was no longer considered a risk during the survey it conducted just last June.
“The choice of the people who made up the Marcos Jr. Cabinet seems to shout continuity from the Duterte administration and its policies. I personally think that Marcos Jr. will take a page from the Duterte playbook of non-interference in economic affairs and will let his economic team lead the way,” JCER quoted UnionBank of the Philippines chief economist Ruben Carlo Asuncion as saying.
Balisacan, however, said the targets of the long-term vision he shepherded also as Neda chief during the Benigno Aquino III administration — the “AmBisyon 2040” goal of making the Philippines a high-income country where no one is poor 18 years from now — may have to be revisited “given the setbacks caused by the pandemic.”
“Nonetheless, the aspirations and vision remain relevant, guiding us to stay the course toward improving the welfare of Filipinos,” Balisacan said.
The Neda chief said the deep recession in 2020 at the height of the most stringent COVID-19 lockdowns “could have made an impact on our ability to meet the original target of 2040, but, of course, we are not completely discounting that our economy can grow much faster as our recent history showed.”
“A few years of sliding would not be too bad, that’s why our priority is to recover quickly from the pandemic and go back to the high-growth trajectory, but at this time mindful that we would want to make that growth more inclusive and more resilient so that next time we have pandemics like this or any disruptions, technological or global, the economy should not be sharply affected,” Balisacan said.
Balisacan said he believed the delay in reaching high-income status won’t take too many years as long as the scarring issues, especially on the education and health sectors which impacted on the quality of Philippines’ human capital in the future, will be addressed.
“We have to quickly get things back in the proper course so we can minimize the impact [of pandemic-induced scarring] on the growth potential of the country,” which he noted was very much dependent on human capital, the ability to adopt innovations and taking advantage of opportunities. “If that human capital is degraded, then that capacity and the potential of the economy are weakened — that’s what we need to worry about.”
TSB