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Friday, March 29, 2024

Reopening of economy expected to sustain rapid growth in 2023

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The growth prospects look bright for the Philippines in 2023 as the sustained reopening of the economy towards normalcy will boost business activities, an economist said Friday.

Rizal Commercial Banking Corp. chief economist Michael Ricafort said in a report the resumption of international tourism from February 2022 and the return of face-to-face schooling since August were “the last remaining elements to complete the economic recovery story.”

He said these “would help the recovery in the right direction for many hard-hit businesses and industries during the pandemic/lockdowns.”

“The economic reopening narrative fundamentally led to more jobs/employment/livelihood and other business/economic opportunities that, in turn, led to higher sales/revenues, earnings, and valuations for some companies and industries,” he said.

Ricafort said the economy could expand between 7.5 percent and 7.7 percent in 2022, on lower base effects. He said the gross domestic product growth could normalize to around 6 percent to 6.5 percent in 2023 and beyond with the stabilization of the GDP base, taking into account the absence of lockdowns in 2022.

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The National Economic and Development Authority said it remained confident about the economic prospects in the near term. “A robust domestic economy, propelled by sustained consumption and investment, will be key to attaining the 6.0 percent to 7.0 percent growth target for 2023,” NEDA Secretary Arsenio Balisacan said in his yearend report.

“We aim to accompany this expansion with headline and food inflation rates of 2.5 percent to 4.5 percent and an unemployment rate of 5.3 percent to 6.4 percent. We expect poverty incidence to fall to about 16.2 percent in 2023 from its 2021 level of 18.1 percent,” Balisacan said.

Ricafort noted other important economic growth drivers in 2023, including the near record-high OFW remittances, higher exports, record-high employment, improved manufacturing output, increased government spending and the timely approval of the 2023 national budget.

He said the continued growth in business process outsourcing that generates more than $30 billion a year, resurgence in mining activities, intensification of productivity in agriculture, manufacturing, tourism and other priority sectors would help reduce poverty and enable the country to achieve middle-income status in the coming years.

Ricafort, however, warned that elevated inflation, higher interest rates and the risk of US recession could slow down global economic growth, global trade, foreign direct investments, remittances and employment.

“This could be aggravated by some continued COVID lockdowns in China, which is the world’s second-largest economy and could slow down global economic recovery, as well as aggravate global supply chain disruptions since the pandemic started,” he said.

Ricafort said the threat of geopolitical risks, especially the continued Russia-Ukraine conflict since Feb. 24, 2022, could lead to more sanctions and other restrictions that could aggravate global supply chain disruptions and add up to inflationary pressures.

The Russia-Ukraine war led to higher global commodity prices earlier this year and was the main source of elevated inflation in many parts of the world that prompted aggressive US Federal Reserve interest rate hikes.

Ricafort said Philippine inflation in 2022 could average around 5.8 percent before decelerating to 4.5 percent to 5.5 percent in 2023.

Inflation in November accelerated to a 14-year high of 8 percent from 7.7 percent in October. The Development Budget Coordination Committee on Dec. 5, 2022, in consultation with the Bangko Sentral ng Pilipinas, decided to retain the inflation target of 2 percent to 4 percent for 2023 and 2024 and set the same target for 2025 to 2026.

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