I have often called attention to the penchant of economic people—both in government and private sector, particularly economists—for making projections about GDP growth, inflation and poverty, as if all factors are within their grasps.
I can only surmise that such projections are meant to appease people about the economic uncertainties they face now and tomorrow while at the same time covering up the uneasiness and anxiety that these economists and economic managers feel deep within them.
For, how can one project prices of goods and services, when we do not live in a constant environment but something that changes because of factors like human intervention, climate, politics and logistics (here and abroad).
Just last July 29, Bangko Sentral Governor Felipe Medalla said he expects inflation to fall back to within the 2 to 4 percent target band next year from a projected average of 5 percent this year, even as food prices alone keep going up by the day. This is possible, he said, because of further interest rate hikes this year, which is within his control.
Previous to that, he said, the BSP was ready to use the “full force” of monetary policy measures to combat inflation and support the peso currency after the Federal Reserve hiked rates by 75 basis points (just like what he did in July). He is looking at a rate hike at the August 18 meeting of the Monetary Board “but not as much as 75 basis points.”
“Maybe, depending on the data, (there will be) more policy rate adjustments even before the end of the year,” he said on Friday at a forum organized by the Manila Times.
The BSP’s key reverse repurchase facility rate is currently at 3.25 percent, after three successive hikes totaling 125 basis points between May and July, including an off-cycle increase of 75 bps on July 14.
Medalla said the peso-dollar exchange rate will continue to be “flexible” and driven by market forces. The floating foreign exchange rate had been in force since October 1984.
Reuters reported Medalla saying that BSP was prepared to “manage spillover effects” from higher US rates including the weakening of the peso, which if left unchecked could push prices higher.
Economy expanded to 9% in Q2
Even without the latest data on production, consumption, inflation, employment (and underemployment, poverty and the likes) Medalla said the economy likely grew by 9 percent in the second quarter.
However, Medalla told reporters on July 29 that he expects gross domestic product (GDP) growth to be “slower” in the second half of 2022.
On whether the economy expanded by double digit in April to June, he said, “I don’t think so but maybe around 8 or 9 percent.” But his personal growth projection for the economy this year is at 7 percent, or within the target of 6.5 to 7.5 percent set by the government.
Medalla said consumption growth and capital formation have been expanding rapidly this year.
In the first quarter, household consumption grew by 10.1 percent year on year, higher than the 7.5 percent in the previous quarter and a reversal of the 4.8 percent decline in the first three months of 2021. This accounted for about three-fourths of the country’s economic output and added 7.5 percentage points to the 8.3 percent GDP growth in the first quarter.
Capital formation, the investment component of the economy, jumped by 20 percent in the first three months of 2022, reversing the 13.9 percent decline last year.
However, the Philippine outlook for 2023 may be clouded by the expected slowdown in the global economy.
“Ang mahirap (It’s difficult to see) what happens next year because if markets are all growing more slowly saan manggagaling ’yung growth (where will growth come from),” Medalla said. (Finally he is making sense, based on reality).
The International Monetary Fund (IMF) last week slashed global growth forecasts for 2022 and 2023, noting the risks from elevated inflation and the Russia-Ukraine war may push the world economy to a recession. Global GDP is expected to grow by 3.2 percent this year, and 2.9 percent in 2023.
The IMF raised its GDP growth forecast for the Philippines to 6.7 percent this year, from 6.5 percent previously, but lowered the 2023 GDP projection to 5 percent, from 6.3 percent previously.
During an online business forum hosted by The Manila Times on Friday, Medalla said the government’s GDP targets are achievable, thanks to strong foreign direct investments (FDIs), and consumer and business sentiment.