THE ONGOING political noise will not affect the performance of the economy, given the government’s “sound and sustained” economic policies, the National Economic and Development Authority (NEDA) said Thursday.
Unsurprisingly, NEDA Secretary Arsenio Balisacan issued the statement after meeting with President Ferdinand Marcos Jr., Senate President Francis Escudero, and Speaker Martin Romualdez in Malacañang.
Forget BRIC-like futures
“Political noise won’t slow down economy,” Balisacan pledged. “Our economic policies, our economic policy directions are sound and sustained.”
In reality, the economy is not immune to political flames.
In the past year, the tensions in the Philippine political class have escalated dramatically, exploding in the past few weeks, coupled with renewed China friction and the effort to cement Manila’s way into the Indo-Pacific front.
The stakes are high because such alignments have already caused massive displacement and devastation in Ukraine and Gaza and could prove far more destructive in the Taiwan Straits and Southeast Asia.
Judging by the headlines and debates of the political class, the primary objectives are currently political. Meanwhile, the Philippines economy is taking one hit after another. Hence, the effort to assuage constituencies that everything is fine.
In reality, the post-pandemic impoverishment and runaway inflation have undermined ordinary Filipinos’ economic prospects. No BRIC-like future is viable in the Philippines as long as the country’s focus is on personal politics and geopolitics rather than on Filipino welfare and the struggle against poverty.
Economic growth: expectations vs. realities
Early in the year, US news agency Bloomberg asked President Marcos Jr whether the Philippines could achieve an 8% growth rate. “Why not?” the president replied. “Yes, I think it is, I think it is doable.”
Marcos expected the country to achieve up to 7% growth for 2024.
Yet, the GDP year-on-year growth was only 5.2% in the third quarter of 2024. In the past three quarters, household consumption has grown only by 4.8% year-on-year; the slowest in the post-pandemic quarters. In a historical view, something similar occurred last time in late 2011, over 13 years ago.
Philippine GDP annual growth rate (%), 2010-2024
The slow pace was presumably due to sustained high inflation in the past 1.5 years, weak credit gains, and soft growth in durable equipment.
Moreover, unemployment peaked at 4.7% in July, even before the rainy season, due to lower job creation in construction, services, and agriculture.
Potential for negative turns
Supporting growth, investment spending reached 6% year-on-year in the first half of the year, along with net exports. The former relies on rising debt and the latter presumes a steady course.
The problem is that, in the coming months, both will become more uncertain with the impending Trump trade and technology wars.
Most analysts expect improved growth with easing inflation into 2025, which should provide relief to household purchasing power.
However, this scenario relies on the hoped-for rate cuts and continued lower inflation rates. The two are affected by US rates and inflation; particularly due to the increasing economic dependency of the Philippines on the West and the US in particular.
Philippine interest rate and inflation
President-elect Trump has pledged that under his rule, “inflation will vanish completely.” That, of course, is baloney. Trump’s policy proposals are likely to worsen inflation.
Trump’s plans to impose huge tariffs on imported goods, deport millions of migrant workers and demand a voice in the Federal Reserve’s interest rate policies would likely send prices surging, as 16 Nobel Prize-winning economists warned back in June.
Trade deficit adversities
Not only has the Philippine trade deficit continued to widen, but recently it posted its largest increase in over two years. The country’s trade deficit posted a 43.4% growth in September 2024; the highest since the 81.1% growth recorded in August 2022, amid the pandemic plunge.
In September, the United States (17.3%) was the country’s top trade partners, along with Hong Kong (13.9%), Japan (13.5%), and China (13.3%). China, meanwhile, was the country’s top import source, accounting for 25% of total imports in September 2024; more than twice as much as the second-ranked Indonesia or Japan.
Here’s the problem. As Philippine friction has dramatically accelerated with China, the country’s largest trade partner – Hong Kong/China (27%) – faces long-term risks. There are alternatives but all of them will add to rather than reduce the inherent economic costs.
The spread of geopolitical friction into trade in bilateral trade would prove very costly to the Philippines because it would penalize affordable China prices and foster a return of higher costs thus contributing to inflation.
Investment and tourism from China have already plunged dramatically.
Also, Manila has a trade surplus with the US.
Misguided trade wars and geopolitics
Since most ASEAN economies are net exporters to the US, they cannot avoid consequences when Trump implements his 10%-20% tariff on imports of all goods from all countries, in addition to 60% tariff on Chinese imports. In the Philippines, additional concerns linger on heightened security risks since Manila has pledged alliance to US military ties.
Such tariffs could reduce exports from non-China Asia by 3% or more. Those ASEAN members, which hope to benefit from investment if multinationals away from China, now tout their economic and geopolitical loyalty to the US. Hence, too, the recent friction between Manila and Beijing, fueled by the effort to acquire US mid-range missiles, which China calls “provocative.”
These geopolitical calculations have turned the Philippines into an outlier in the ASEAN, as evidenced by the State of Southeast Asia 2024 survey.
Economic development can only be premised on peace and stability, not on missiles and geopolitics. Despite some political disagreements with China, Indonesia, Vietnam, Malaysia, and other ASEAN countries have successfully built their economic progress on this premise.
So could the Philippines.
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Dr. Dan Steinbock is an internationally recognized strategist of the multipolar world and the founder of Difference Group. He has served at the India, China and America Institute (USA), Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more, see https://www.differencegroup.net
