What’s in store in ’24?

This year, 2024, appears to be a hopeful year that will enable our economy to break off from the problems of the pandemic years. According to a study by PIDS, the government think tank, growth will be steady in 2024. As former finance secretary Ben Diokno puts it, “the improved global economic outlook will help boost the growth of the country’s manufacturing and export sectors.” Our economy is projected to have a growth rate of 5.5 to six percent.

“A key driver of growth in 2024 is expected to be domestic consumption, supported by a steady flow of remittances from overseas Filipinos, rising wages that partially offset declining purchasing power, and an improving job market with an increasing number of wage and salary earners,” the PIDS study noted. “This robust domestic demand is projected to act as a buffer against the impact of a weaker global outlook.”

In a perverse sort of way, the significant isolation of the Philippine economy due to our protectionist policies again shielded us from much of the negative consequences of 2023’s geopolitical troubles and will continue to do so in this year. As always, the OFWs continued to hold up our economy last year and again this year. But they are not isolated from the various wars, as illustrated by the Filipino sailors held hostage by Iranian supported terrorists which attacked their tanker in the Middle East.

This year opened with the President fine-tuning his economic team, replacing Ben Diokno in finance with Ralph Recto, and creating a new super office to coordinate economic matters with private business executive Frederick “Deck” Go to run it. Go was responsible for running Robinsons Land for the longest time and was instrumental for its fast growth. It is not clear how Go will interact with Recto, who as Secretary of Finance, is traditionally expected to head the economic team.

Both Recto and Go are starting with a much better economic environment than what Diokno faced. Indeed, I apologize to Ben for failing to edit out a portion of a reader comment last Wednesday that said he is responsible for causing “possibly irreversible economic problems.” No such thing happened. In fact, the problem was more of sins of omission for allowing the President to make serious policy mistakes like the retail price cap on rice and the messy sugar importation decisions.

The worst thing Diokno did was his strong support for the Maharlika Fund which could have a long-lasting negative impact for the economy. Then again, former BSP governor Felipe Medalla also grudgingly gave Maharlika his support, only to take it back after his term expired.

Medalla said at a forum at the UP School of Economics: “I am quite embarrassed by the way one of our top graduates was supporting Maharlika…” without naming the individual he was referring to.

As for the general economy, there was nothing much that could be done last year by the economic managers except to make sure we don’t do stupid things. The impact of the world economy and its embattled supply chains that were affected by two wars, as well as that of the cold war between the US and China, had to play out their course. The virtual closure of the Suez Canal with the Houthi strikes on international shipping promises to create problems for the world economy this year.

Sustained remittance inflows from workers abroad, fast-growing IT-BPO sector, and the continued recovery of the tourism sector are also expected to support economic growth momentum this year, according to S&P Global. Then again, we have to increase our efforts to protect our IT-BPO sector from displacement by the increased use of AI among our clients abroad. A NY-based friend of mine who runs a call center operation here told me he has started to lay off some staff whose functions had been taken over by AI.

“Despite the positive outlook, several potential risks deserve attention,” the authors of the PIDS study warned. They highlight the importance of maintaining the independence of the central bank and its focus on inflation control, as mixed messaging and missed timing in monetary policy making could pose challenges.

The PIDS study raised concerns for the new finance secretary regarding potential delays in fiscal policy reforms, particularly in detailing the country’s medium-term fiscal framework (MTFF). The authors call for a comprehensive approach to fiscal sustainability, urging clarity on additional revenues from legislative measures and the timing of deficit-reducing measures. Recto is better positioned to get legislative support for these than Diokno.

Other policy recommendations are the usual stuff: controlling inflation without harming growth, managing exchange rate volatility while maintaining flexibility, rebuilding fiscal space, and investing in infrastructure and human capital.

Meanwhile, BMI (a unit of Fitch Solutions) has a positive outlook for consumer spending in the Philippines over 2024.

“Our consumer spending outlook will be more positive, relative to 2023, as economic growth persists and consumption levels normalize. Easing inflationary pressures and healthy employment will form the base for stable consumer spending. Risks to this outlook would be higher than anticipated inflation and more aggressive economic weakness, which will weigh heavier on household purchasing power.”

But there are things our economic managers must anticipate and act on. One is the effects of the El Niño on agriculture, the impact of right-of-way issues on infrastructure targets, and the repercussions of recent geopolitical developments.

Agriculture Secretary Francis Tiu Laurel, Jr is sure we will have enough rice as contracted volumes from India have started to arrive. He denied plans to reinstitute retail price caps and said the DA spokesman was seriously mistaken to have suggested that.

“I am well aware that setting retail prices, even if just suggested, tends to be counterproductive, specially when there is ample supply. In most cases, farmers bear the brunt of a price limit because traders will only lower their purchase prices to keep their margins. Consumers also don’t benefit. It could also fuel price speculation and supply hoarding that evolves into another problem altogether,” Laurel said.

It’s a relief they will not make the same mistake again.

Boo Chanco’s email address is [email protected]. Follow him on X or Twitter @boochanco.