International Monetary Fund Managing Director Kristalina Georgieva warned on New Year’s Day that 2023 will be a difficult year for global economic development. “For the global economy, 2023 will be a tough year, tougher than the year we leave behind. We expect one-third of the world economy to be in recession,” Georgieva told CBS’s “Face the Nation” in an interview aired on January 1. The warning came amid the Ukraine war, soaring prices, and higher interest rates that have affected rich and poor countries alike.
From the Associated Press: “The global economy will come “perilously close” to a recession this year, led by weaker growth in all the world’s top economies—the United States, Europe and China—the World Bank warned on Tuesday.”
“In an annual report, the World Bank said it had slashed its forecast for global growth this year by nearly half, to just 1.7 percent, from its previous projection of 3 percent. If that forecast proves accurate, it would be the third-weakest annual expansion in three decades, behind only the deep recessions that resulted from the 2008 global financial crisis and the coronavirus pandemic in 2020.”
The World Bank report said that rising interest rates in developed economies like the US and Europe will attract investment capital from poorer countries, thereby depriving them of crucial domestic investment. It said those high interest rates will slow growth in developed countries at a time when Russia’s invasion of Ukraine has kept world food prices high.
“Russia’s invasion of Ukraine has added major new costs,” World Bank President David Malpass said. “The outlook is particularly devastating for many of the poorest economies where poverty reduction is already ground to a halt and access to electricity, fertilizer, food and capital is likely to remain limited for a prolonged period.”
The impact of a global downturn is seen falling particularly hard on poor countries. It can be recalled that during the 1997 Asian financial crisis, there was significant reductions in household consumption across the affected countries. Fortunately, growth in household expenditure remained relatively stable in the Philippines due to OFW remittances and the depreciation of the peso.
A report released by the Asian Development Bank (ADB) in December—Asian Development Outlook (ADO) 2022 —said the Philippine economy will grow 7.4 percent in 2022, up from the bank’s September forecast of 6.5 percent. Gross domestic product (GDP) growth for 2023 is expected to slow to 6.0 percent from the previous forecast of 6.3 percent.
“The Philippine economy has shown strong underlying growth momentum and resilience in 2022 and this is expected to continue in 2023, with GDP growth converging towards its longer term growth rate of about 6 percent,” said ADB Philippines Country Director Kelly Bird. “There are downside risks to growth in 2023, including inflation stickiness, further increases in interest rates, and a sharper than expected slowdown in GDP growth in advanced countries.”
The 2022 growth forecast for the region was raised to 5.5 percent from the previous 5.1 percent despite the overall dimmed outlook for Asia and the Pacific, according to the ADB report. GDP growth in Southeast Asia is expected to slow to 4.7 percent in 2023.
A global economic slowdown this year will certainly affect developing countries, including the Philippines. Avoiding setbacks will be an important strategy amid strong headwinds. The government has said that it expects to continue to invest on its flagship infrastructure projects to spur employment and lay the foundations for a more vibrant and resilient economy. Now is the best time for the Marcos administration to roll out the big-ticket infrastructure projects to boost the economy and create more jobs for the people.
