Ben Kritz
Oct 16, 2022
 In conjunction with the World Bank's Fall Meeting this week, the International Monetary Fund (IMF) published its October update to its global economic forecast for 2023, and the outlook is not encouraging.
As it pertains to the Philippine economy, all the news about the forecast was headlined with some version of "PH growth may be affected by 'global shocks,'" which closely follows the official line the government has held for quite some time: We're doing great, and if our economic growth falls short of expectations, that is caused by external factors beyond our control.
There are several clues that the IMF outlook is entirely too optimistic. The first clue comes from a strong argument by an outside source. In response to the IMF publication, Oxford Economics — which has an outstanding record of forecasting accuracy — released its own summary outlook, which was significantly less positive.
Oxford Economics expects that a recession in some advanced economies is entirely likely. It explains that one of the flaws in the IMF outlook is that its data is several months out of date; for example, it does not take into account effects of the calamitous supplemental budget launched by the newly installed Truss government in the UK. Also, the more recent decision by OPEC to cut oil output as a sop to Russia, which is already having significant impacts on energy prices at the beginning of the northern hemisphere winter season, could not have been factored into the IMF's forecasts.
Oxford Economics also explains, "The key difference between our outlook and the [IMF's] is our assessment of growth in advanced economies. We expect GDP in the US, Canada and most of Europe to fall next year as squeezed real incomes, higher interest rates and adverse wealth effects from falling asset and house prices bite. By contrast, the IMF expects positive, albeit anemic, growth in 2023."
The point here is, if the IMF is behind the curve of current events on a global basis, it is almost certain to be similarly out-of-step with local circumstances. To be fair, that is probably something it can't help; macro reports by large, bureaucratic institutions take a long time to produce.
Domestic conditions at the moment certainly seem to indicate a disconnect between reality and the IMF's view that the Philippines will be "among the strong regional performers in 2023."
First, there is the falling peso, which has hovered near P59 to $1 for a couple of weeks, and has declined by 15.7 percent since the beginning of the year. This weakness has been attributed — by both credible authorities and ones that are not so credible — to a strong US dollar rather than inherent weakness in the local currency, but that is at best only a partial explanation. While the "strong dollar" has affected the value of most currencies in the same way, the peso is performing especially poorly; as the chart above shows, the peso has depreciated against the dollar faster than every currency in the Asean, except for the two perennial basket cases, Laos and Myanmar (not shown).
This is especially sobering news when one considers that the Philippines ordinarily draws in a large volume of dollars in the form of BPO revenues and remittance income. If anything, the country should be better-insulated against a strong dollar than its regional peers, and yet it is being outrun by everyone.
The reasons for this seem obvious enough on the face of things, but actually doing something about them will require economic policymakers to drop their "we're fine, just under a little pressure from external factors" pretense and study reality objectively. Frosting a turd and telling everyone it's a cupcake is only going to fool the public for so long before unaddressed issues are felt as real difficulties in keeping food on the table and keeping the lights on. We can certainly hope that is not the path the country is on, but the inevitable outcome of such a situation is so dire that no one in a position to do anything to prevent it should even risk setting one foot on it.