What’s ahead for the Philippine economy

The Philippines has been regarded as one of the fastest-growing economies in Southeast Asia. With its abundant natural resources, strategic location, and resilient workforce, the country has ample growth opportunities in various sectors.

According to S&P Global Market Intelligence, the Philippines economy has continued to show strong recovery, with GDP growth strengthening to a pace of 5.9% year on year in the third quarter of 2023.

However, the Philippine government has revised down its growth target for 2024 to 6.5%-7.5% from the 6.5%-8.0% range due to inflation and tepid consumer spending weighing on the economy. Despite this, the Asian Development Bank (ADB) forecasts the Philippine economy to grow by 6.2% in 2024, underpinned by rising domestic demand, a recovery in services, and rising public infrastructure spending.

A similar report from the S&P Global Market Intelligence revealed that the Philippines is projected to grow rapidly over the next decade, with total GDP increasing from US$440 billion in 2023 to US$800 billion in 2030, and is expected to become one of the Asia-Pacific region’s one trillion-dollar economies by 2033.

In line with this, consumer spending is expected to remain strong as employment continues improving and remittances remain steady. The ADB emphasizes that public investment and private spending will support economic growth, with infrastructure developments and sustainability initiatives expected to boost consumption, jobs, and investment.

Investment priorities

The country is currently making significant efforts to increase investments in both human and physical capital to aid economic growth. The strong labor market, continued public investments, and recent investment policy reforms are expected to have positive effects that could stimulate private investment and drive domestic demand.

However, one of the major challenges in achieving a sustainable economic growth is the infrastructure gap as it limits the country’s competitiveness and productivity. The infrastructure deficit in the Philippines encompasses transportation, energy, water, and digital connectivity.

The lack of adequate and modern infrastructure not only impedes the day-to-day lives of citizens but also acts as a bottleneck for economic activities. Traffic congestion, frequent power outages, water scarcity, and limited internet access hinder productivity and investment, challenging the nation’s overall economic potential.

The digital divide is yet another facet of the infrastructure gap. Unequal access to the internet and outdated telecommunications infrastructure hinders the participation of remote and underserved communities in the digital economy.

According to the International Monetary Fund (IMF), the Philippines needs to expand its infrastructure push to become an upper middle-income country and reduce poverty. In 2024, the country aims to maintain high infrastructure spending at 5%-6% of the annual GDP.

In a statement, Department of Budget and Management (DBM) Secretary Amenah F. Pangandaman said that the government has allocated P1.3 trillion in the FY 2023 National Budget to sustain the “Better, More” program, which includes investments in roads, flood control infrastructure, local infrastructure development, buildings, and railways.

On the other hand, the private sector participation in infrastructure projects is important for filling the financing gap and making progress in infrastructure development. In fact, the government has implemented the Public-Private Partnership (PPP) Code, which aims to generate additional funds to cover the country’s P23-trillion infrastructure gap.

The PPP Code is designed to create a rules-based, transparent, and efficient PPP framework, allowing the transfer of capital costs and financial risks to the private sector while giving the private sector the opportunity to gain profit. This move is expected to help the Philippines catch up with its Asian neighbors in terms of foreign direct investments and infrastructure development.

Energy crisis is also a major hindrance in achieving economic growth as the Malampaya natural gas fields, which provide 30% of Luzon’s energy consumption, are expected to be depleted by 2024-2025. Unfortunately, the country is behind schedule in developing solutions, and an additional 52 gigawatts of power capacity will be needed by 2045.

Despite the country’s considerable potential for renewable energy, there is a significant portion of the population without reliable access to electricity. Remote islands and rural areas often face difficulties in connecting to the centralized power grid, leading to energy poverty. As of 2022, the country’s energy mix is composed of coal (31%), natural gas (4.2%), renewable energy (32.7%), and oil-based solutions (32.2%).

However, the government has allowed a full ownership of renewable energy projects, including the exploration, development, and utilization of solar, wind, hydro, and ocean or tidal energy resources. They also envisioned increasing the renewable energy (RE) share in the supply mix to 35% by 2030 and 50% by 2050, presents a significant opportunity for private sector investment in RE. Hence, the Philippines has set its sights on increasing energy efficiency, adopting new technologies, and developing resilient and climate-proof energy infrastructure with the private sector, international donors, and development partners to achieve its ambitious energy transition goals is the country.

Subsequently, companies are recognizing the potential for profit in sustainable ventures while contributing to national goals of reducing carbon emissions. They have started to look for ways to incorporate sustainability into their business models, including investing in renewable energy, reducing waste and emissions, and adopting sustainable practices throughout their operations.

Philippine corporations are taking advantage of solar and wind power to reduce their reliance on fossil fuels. They are also adopting new technologies and practices to reduce the amount of waste they produce and the emissions they generate. For example, some companies are using biodegradable packaging materials, while others are implementing recycling programs to reduce the amount of waste they send to landfills.

Companies are also investing in research and development to improve the efficiency and effectiveness of renewable energy systems, which is leading to new breakthroughs in the industry.

Furthermore, the growth in the renewable energy sector is not only contributing to a cleaner environment but also fostering economic development through job creation. Renewable energy companies are hiring engineers, technicians, and other skilled professionals to design, build, and maintain renewable energy systems.

Challenges in sustaining growth

Alongside these growth opportunities, nonetheless there are challenges and risks that need to be addressed, including the potential slowdown in major advanced economies, geopolitical tensions, inflation stickiness, a global economic slowdown, and high inflation.

Inflation, in particular, could impact the cost of doing business and consumer purchasing power, requiring strategic measures and policy adjustments to maintain economic stability. The ASEAN+3 Macroeconomic Research Office (AMRO) has projected that inflation for 2024 will settle at 3.6%, falling within the government’s target of 2% to 4%. The Bangko Sentral ng Pilipinas has also expressed concerns about missing the inflation target in 2024, worrying about the risks that are tilting to the upside, which could further push inflation above the target range.

It is thus important for the government and relevant stakeholders to mitigate risks towards creating a favorable environment for sustained economic growth. — Mhicole A. Moral