The skyrocketing consumer prices will not only drag down the country’s economic growth, but also keep many Filipino families trapped in poverty even if they earn more, the National Economic and Development Authority (NEDA) said.
While high inflation is not here stay, Socioeconomic Planning Secretary Arsenio M. Balisacan said on Tuesday, Oct. 18, that it is not yet clear how far global headwinds would squeeze Filipino consumers with raging price pressures.
Balisacan explained that there are conditions beyond their control, like the Russia-Ukraine conflict, natural calamities, and the aggressive monetary tightening in the United States.
These headwinds, he said have put substantial supply constraints on essential commodities, such as petroleum, and inputs for food production.
“As a result, inflation has remained persistently high globally, driven by rapid price increases in food, transportation, and energy,” Balisacan told reporters.
Inflation quickened to 6.9 percent in September, hitting its fastest pace in four years.
From January to September, average inflation stood at 5.1 percent, within the government’s assumption of 4.5 percent to 5.5 percent for 2022, but well above the two percent to four percent target.
“The Philippines and our Asian neighbors are not spared from these trends – major economies in the ASEAN, such as Thailand, Singapore, Indonesia, and Malaysia, have seen their inflation rates accelerate in the past year,” the NEDA chief said.
The US Federal Reserve has also substantially raised interest rates to rein in inflation at a 40-year high, and “it appears ready to continue to do so even at the expense of a recession,” Balisacan said.
“These developments have given rise to predictions of slowdowns or possible recessions in major developed economies and trading partners such as the United States, members of the European Union, and China,” Balisacan said.
“Recessions in our major trading partners entail weaker demand in terms of exports, investment, and tourism,” he added.
As a small, open economy, the Philippines cannot escape the effects of these global headwinds, the NEDA chief said.
Based on the NEDA analysis, sustained increases in inflation in 2022 and 2023 will cause a slowdown in the country’s economic growth, translating into a 0.6 percent gross domestic product (GDP) cut next year.
“While we expect our poverty situation to improve as we continue our recovery, inflation and rising interest rates will mute this improvement,” Balisacan said.
However, he said the government expects the rise in inflation to be temporary, as it is expected to slow down and return to the medium-term target of two percent to four percent.
“We maintain that the country's economic prospects remain bright as we get our priorities straight and our acts right,” Balisacan said.
The NEDA chief’s outlook is borne out by the World Bank's recently released October forecast for 2022 and 2023.
The Washington-based lender expects the Philippines to grow by 6.5 percent in 2022, second only to Vietnam among major ASEAN economies, and by 5.8 percent in 2023, again faster than Indonesia, Malaysia, and Thailand.
Similarly, ADB and the ASEAN+3 Macroeconomic Research Office project Philippine economic growth to remain robust in 2022 and 2023, with the economy expected to grow by 6.5 percent to 6.9 percent in 2022 and 6.3 percent in 2023.
In addition, Balisacan said employment statistics in the country are also encouraging.
Jobless rate declined to 5.3 percent last August from 8.1 percent in the previous year, while the labor force participation rate rose to 66.1 percent from 63.6 percent.
The NEDA chief attributed the improved labor market to the opening or reopening of the economy amid easing quarantine restrictions.
“The Marcos administration assures the Filipino people of its vigilance and steadfast commitment to monitoring and managing these risks,” Balisacan said.
“We believe we are on the right track with the right plans and policies. With your trust and our government's greater sense of urgency, we are confident that we can weather today's economic challenges,” he added.