The Philippine economy is projected to weaken in 2023 with gross domestic product (GDP) decelerating to 4.5 to 5.5 percent as the global economic environment deteriorates, a government think tank said.

A study published by Philippine Institute for Development Studies (PIDS), authors Senior Research Fellow Margarita Debuque-Gonzales, Supervising Research Specialist John Paul Corpus, and Research Analyst Ramona Maria Miral projected “further rough sailing” for the country's economy.

It could be recalled that in last year’s issue of the PIDS Economic Policy Monitor (EPM), the authors expect “rough recovery” from the COVID-19 pandemic considering factors such as intermittent quarantines and weak business and consumer confidence.

But in their recent paper “Macroeconomic Prospects of the Philippines in 2022–2023: Steering through Global Headwinds”, which will be released as the lead chapter of the 2021–2022 PIDS EPM, the authors “anticipate further rough sailing this year and the next, as the country faces a new set of headwinds, with inflation becoming a global issue and leading to widespread monetary tightening, which presages a broad slowdown.”

“Financial volatility in advanced countries has been spilling over to emerging market economies, increasing the complexity of issues and challenges faced by local policymakers in these places,” they added.

With the country’s sustained economic reopening, the gross domestic product (GDP) may grow by about 7.1 percent in 2022, which is within the government’s target of 6.5 to 7.5 percent. However, the GDP is projected to decelerate to 4.5 to 5.5 percent in 2023 due to the “gloomy and uncertain” outlook for the world economy. This is below the 6.5 percent target that the current administration set for 2023.

Debuque-Gonzales and her coauthors outlined key priorities that policymakers should consider to steer the economy through global headwinds.

One is to control inflation without harming growth. The authors noted that taming rapid inflation can be “difficult and extremely costly” thus, careful calibration is crucial to prevent stifling economic recovery.

Another is smoothening exchange rate volatility while maintaining flexibility. “Avoiding severe exchange rate fluctuations should be a priority. However, the appropriate response must again depend on the nature of the exchange rate shock as well as its impact on the monetary and financial sectors,” the authors said.

The authors also urged the government to pursue fiscal sustainability but emphasized the need to protect those at risk from the lingering effects of the pandemic and rising inflation.

It is also critical to prepare for financial tightening and uncertainty. “In an uncertain environment, financial regulators will need to stay vigilant and guard against possible threats to financial stability that could set off an adverse macro-financial feedback loop,” they noted.

The authors also urged the current administration to address pandemic scars and continue the policy momentum on investments.