National Outlook Philippines – 2023

2022 Review

The Philippine Gross Domestic Product (GDP) posted a growth of 7.2% in the 4th quarter of 2022, resulting in a 7.6% full-year growth.

The main contributors to the fourth quarter 2022 growth were: wholesale and retail trade; repair of motor vehicles and motorcycles, 8.7 percent; financial and insurance activities, 9.8 %; and manufacturing, 4.2 %. For annual 2022, the industries which contributed the most to growth were: wholesale and retail trade; repair of motor vehicles and motorcycles, 8.7% percent; manufacturing, 5.0 %; and construction, 12.7%.

Among the major economic sectors, industry and services posted positive growth in the fourth quarter of 2022, with 4.8% and 9.8%, respectively. However, agriculture, forestry, and fishing (AFF) posted a contraction of -0.3%. On an annual basis, AFF, Industry, and Services all posted positive growths of 0.5%, 6.7%, and 9.2%, respectively.

On the demand side, Household Final Consumption Expenditure (HFCE) grew by 7.0% in the fourth quarter of 2022. Government Final Consumption Expenditure (GFCE), 3.3%; gross capital formation, 5.9%; exports of goods and services, 14.6%; and Imports of goods and services, 5.9% were other sources of growth for the quarter. In 2022, HFCE grew by 8.3%; GFCE by 5.0%; gross capital formation by 16.85; exports of goods and services by 10.7%; and Imports of goods and services by 13.1%.

The Gross National Income (GNI) grew by 9.3% in the fourth quarter of 2022 and by 9.9% for the entire year of 2022. Net Primary Income (NPl) from the rest of the world grew by 57.5% during the fourth quarter of 2022 and by 76.4% for the entire year.

Source: percent-full-year-2022

The economic outlook for 2023

GDP growth:  Economic momentum should ease in 2023 amid mounting external headwinds. Slowdowns in key export markets, elevated price pressures and tighter financial conditions will weigh on growth. Robust remittances, a stable labor market, and business-friendly policies will support activity somewhat. A prolonged global economic downturn and geopolitical tensions are risks. The consensus forecast predicts GDP to increase by 5.3% in 2023 and 5.9% in 2024.

Inflation: Higher interest rates and government subsidies are expected to bring inflation back

within the Bangko Sentral ng Pilipinas (BSP) target range of 2.0–4.0% in the 2nd half of 2023, after it hit a 14-year high of 8% in November 2022 due to higher food prices. However, potentially stronger-than-expected domestic demand and renewed currency weakness could push inflation upward. The consensus forecast expects inflation to average 4.6% in 2023 and 3.1% in 2024.

Interest rate: The BSP raised the overnight reverse repurchase facility rate by 75 basis points to 5% in November 2022 to rein in inflation and shore up the peso. A key factor to watch is the U.S. Fed’s monetary policy stance. The consensus forecast sees rates rising further by the end of 2023 to 5.58% and 4.66% in 2024.

Peso exchange rate:  Though elevated interest rates should support the peso through 2023, risks are tilting to the downside amid a deteriorating trade balance and elevated inflation. Consensus forecasts see the peso ending 2023 at PHP 57.0 per USD and 2024 at PHP 55.5 per USD.

Sovereign Fund: In November, lawmakers unveiled plans for the Maharlika Investment Fund (MIF), a sovereign wealth fund aiming to boost investment and economic growth. After initial plans to back the MIF with pension funds were scrapped due to public outcry, the fund is now set to use Central Bank dividends. Given its high-risk profile and controversial governance, the MIF could threaten the country’s fiscal stance and foreign reserves.

Source: Focus Economics-Consensus Forecast ASEAN January 2023

Goals and targets of the Philippine Development Plan for 2023-2028

  • Maintain annual economic growth rate. The goal is for the economy to grow between 6-7% in 2023 and 6.5-8% from 2024 to 2028. Sustained high levels of growth are necessary to meet the “AmBisyon Natin 2040” long-term plan.
  • Create more, better, and more resilient jobs. By 2028, the unemployment rate shall range between 4 and 5%, and the percentage of wage and salary workers in private establishments to the total employed shall range from 53 to 55%.
  • Keep food and overall prices low and stable. Expanding the opportunities available to Filipinos must be complemented by efforts to protect people’s purchasing power. Food and overall inflation will be kept within 2.5 to 4.5% in 2023 and within 2-4% from 2024 to 2028.
  • Enforce fiscal discipline. To ensure the sustainability of growth, the national government deficit- to-GDP ratio will be gradually reduced from 6.5% during the first half of 2022 to 3% in 2028. The outstanding government debt-GDP ratio decreased from 63.7% as of September 2022 and will be reduced to 48-53% by the end of 2028.
  • Transform the production sectors through innovation. The Philippines aims to continue its progress among the innovation achievers of the region by ranking higher, to within the top 33% of the Global Competitiveness Index by 2028.
  • Lower poverty rate. All these efforts are intended to improve the welfare of Filipinos significantly. These strategies are expected to reduce poverty from 18% in 2021 to 8 – 9% by 2028.

What can the business sector and international community expect from the Marcos Administration?

  • The Philippine government will strengthen and facilitate Public-Private-Partnerships (PPPs), trade and investments, research and development, and technology transfer while encouraging robust competition. PPPs are expected to upgrade the country’s energy, logistics, transportation, telecommunications, and water infrastructure.
  • The government shall build on game-changing reforms in the investment environment, such as amendments to the Foreign Investment Act, Retail Trade Liberalization Act, and Public Service Act, as well as passing a Corporate Recovery and Tax Incentives for Enterprises Law.
  • Policies enabling open and competitive markets will complement these reforms. The goal is to make it easier for companies to compete and innovate while upholding consumer protection. Businesses will be assured of lower transactioncosts, a healthy regulatory environment, and protection from anti-competitive practices.

Source: Philippine Development Plan 2023-2028: Briefer