What can be expected in 2024?

Miguel G. Belmonte, President and CEO of ����ý, welcomed all to the “Forecast 2024” business conference on Nov. 22 at the Grand Hyatt Manila, with a thought-provoking quote from the blockbuster movie series, Star Wars.

“Never tell me the odds!” Han Solo replied to the robot C-3PO’s comment that successfully navigating an asteroid field had approximately odds of 3,720 to 1. Mr. Belmonte set the tone for an upbeat and optimistic business forecast for 2024, “against all odds.”

At the conference, the keynote speakers to the theme, “PH Rising: Keeping the Momentum,” were the country directors for the Philippines of international financial institutions: the Asian Development Bank (ADB), the World Bank (WB), and the International Monetary Fund (IMF).

Ndiamé Diop of the World Bank said he is optimistic about the country’s growth prospects despite global headwinds. He was particularly concerned about the 60.4% (February 2022-October 2023) disruption to global food markets and the 616.5% (April 2020-September 2021) disruption to global trade. He worried about the war in Ukraine, and the currently raging Hamas-Israeli fight, and their impact on oil prices and food supply chains.

“Even 5.6% is a really decent growth rate (for the Philippines. And I think if the global economy improves going forward, the ceiling grows even higher,” he said. In October, the World Bank cut its gross domestic product (GDP) growth forecast for the Philippines to 5.6% from the 6% projection given in June. It also trimmed its growth forecast for the Philippines to 5.8% for 2024 from 5.9% previously. These are below the government’s 6-7% target for this year and 6.5-8% in 2024.

IMF Representative to the Philippines Ragnar Gudmundsson talked about the odds in the forecast for 2024. The global economy, which grew 3.5% in 2022, lowered to 3.2% in 2023. There will be some more of a global slowdown after the brief uptick in the recovery from COVID-19. Asia, with its 2/3 contribution to global growth, will be burdened by the slowdown in China.

Inflation will stay high. Mr. Gudmundsson said decisive monetary tightening by the Bangko Sentral ng Pilipinas (BSP), a lower-than-expected minimum wage hike for Metro Manila earlier in July, and nonmonetary measures helped mitigate some of the recent inflationary pressures, but current high interest rates must still be maintained, if not raised higher in 2024. On the fiscal side, he said that the tax-to-GDP ratio of 14.6% is too low, and recommends possible raising of Value Added Tax (VAT) coverage — to increase tax revenues for the government.

The IMF expects inflation to rise to about 6% this year before declining to 3.5% next year. It also sees Philippine GDP growth�� hitting 5.3% in 2023, before accelerating to 6% in 2024.

ADB Country Director for the Philippines Pavit Ramachandran was the most optimistic for the Philippines, saying, “Philippine economic growth is at the ‘top of the leaderboard’ in Southeast Asia.” In the third quarter, the Philippines’ 5.9% GDP growth was ahead of Vietnam (5.3%), Indonesia (4.9%), and Malaysia (3.3%). However, the ADB trimmed its Philippine growth outlook to 5.7% this year from the 6% projection it gave in April. For 2024, the ADB expects 6.2% growth for the country.

Like Mr. Gudmundsson, Mr. Ramachandran thinks “there is still some room” to raise the 14.6% tax-to-GDP ratio, to get revenues for government spending to stimulate the economy. He cited that in previous decades, only 1% to 2% was spent on infrastructure, and this has grown to 5% in the last 10 years. He pointed out that the Philippines is 96th out of 141 countries in infrastructure development. The ADB director reminded that the Malampaya deep sea natural gas power plant in Batangas will be depleted by 2027.

Panel discussions at the ����ý Forecast 2024 focused on the emerging “solutions” or areas of interest that might ease the worries for the medium term: “hedges” against inflation, which are real estate and the stock market, and “equipping energy for greater demand,” which explored alternative sources of energy and the accelerated use of the newer technology.

William Thomas Mirasol, president of Federal Land, Inc, and Noli Hernandez, EVP of Megaworld Corp. talked of their extensive property development projects, which are pre-selling briskly in this inflationary period when people have money but few good things to buy. Real estate, which hardly ever decreases in value, is really one of the best “insurance” against depreciating or devaluating money.

Developers are evidently enjoying a boom in this generally dismal time for others. “Eight to nine percent interest (8%-9% borrowing rate) is not formidable for developers” — it was unabashedly said by the developers at the panel discussion at the conference. This prompted a comment/question from the floor, “Property prices (residential/commercial) have astoundingly increased in the last three years, despite the stagnation of the COVID. Condo prices in Makati, for example, have increased from P50,000/sqm in 2010 to P100,000/sqm in 2020, to an average ₱225,290/sqm as of the second quarter of 2022. Today, one premier developer sells luxury condos at a range of P350,000/sqm to P380,000/sqm, depending on the floor area of the unit.

“The poor consumer seems to have lost one possible hedge against inflation in the disincentive to buying property at inflated prices today. How can property developers temper their natural capitalistic tendency to enjoy the bonanza from the extraordinary situational demand?”

The property developers responded by assuring the public that they are cutting margins thin, as they themselves face high construction costs and supply shortages.

Talk about losing possible hedges to sticky inflation, which experts all say, will still be much around in 2024!

At the same ����ý conference, Ramon S. Monzon, President and CEO of The Philippine Stock Exchange, Inc. (PSE) jolted the audience when he frankly said, “The stock markets have always been a better hedge against inflation than bank deposits — except these times.” He added that “it is a disincentive to the market if interest rates go up more.”

The PSE had earlier targeted 14 IPOs for 2023, but only three IPOs were conducted this year. The Sy-led SM Prime Holdings, Inc. earlier planned to raise around $1 billion by listing its REIT this year, but decided to “defer until market conditions improve, citing headwinds such as high interest rates and elevated inflation.” More alarming is that this year, several companies delisted from the local bourse, namely Metro Pacific Investments Corp., Eagle Cement Corp., Unioil Resources & Holdings Co., Inc., and PICOP Resources, Inc. The tally of delisted companies is set to increase with the upcoming delisting of construction material supplier Holcim Philippines, Inc. on Nov. 27. With investors trying to exit their positions in delisted companies, sellers outweigh buyers, causing the stock prices to fall.

The latter part of the conference discussed energy security and energy access to get to “Net Zero” (a balance of productive use and destructive sourcing of energy). Aboitiz Power Corp. and ACEN (Ayala Energy Co.) laid out programs for renewable energy and alternative sources. The sad consensus was that the energy crisis will not so easily go away, and will persist even beyond 2024. Discussants urged innovations and more efficient communications, “uncovering the capabilities of Generative AI” and concluding that in the end, what is needed is the tight and conscious cooperative effort of all towards managing the scarce and diminishing resources in our limited world.

In Star Wars, Luke said “the Force” is the balance between good and evil, the harmony among all. Jedi heroes become one with “the Force,” the metaphysical power of unity and community, of sharing strengths and augmenting each other.

“May the Force be with you,” Yoda, the sage, says..

Amelia H. C. Ylagan is a doctor of Business Administration from the University of the Philippines.

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