THE end of China’s “post-pandemic bounce” and the full impact of the United States Federal Reserve’s monetary tightening will weigh down GDP growth in Asian economies, including the Philippines, this year and most of next year, according to Oxford Economics.
In an economic brief, Oxford Economics said China’s economy is losing steam and also faces risks of a real estate slump. Chinese consumers, the think tank said, are also more risk-averse and are saving more.
Oxford Economics said the full impact of the US Federal Reserve’s 550- basis point increase as well as its spillover effect on Asian interest rates have not yet been felt.
“To varying degrees, we expect all Asian economies to slow over the last two quarters of this year and for growth to be soft for most of 2024,” Oxford Economics said.
“In our view, the greater part of a growth slowdown for Asia lies ahead. Most Asian economies are currently at an inflection point, but headwinds are starting to increase,” the think tank also said.
Apart from China and the US Federal Reserve, Oxford Economics also warned that informal jobs are increasing and this could indicate that the pain of the slowdown has spread.
“There’s an anomaly here as hours worked have declined even though the number of employed has been supported. The share of precarious, non-formal jobs has also risen. This implies that the pain is being spread out,” Oxford Economics said.
In the Philippines, the latest employment numbers showed there were 7.1 million underemployed Filipinos in July 2023.
This is higher by 562,000 than July 2022 and by 900,000 compared to April 2023; and represented an underemployment rate of 15.9 percent.
Based on classification, there were 3.585 million visible underemployed Pinoys and 3.519 million who were considered invisible underemployed.
Visible underemployment categorizes workers who work for less than 40 hours and want to add more work hours to increase their incomes.
Invisible underemployment covers Filipinos who work for 40 hours and above, but still want to have more hours or more jobs in order to earn a higher pay.
The Philippine Statistics Authority (PSA) said between July 2023 and July 2022, year-on-year, there was a 1.25-million increase in invisible underemployment.
On a quarterly basis, PSA reported a 1.9-million increase in invisible underemployment in July 2023, compared to April 2023.
“Eventually, budgets pose a constraint on consumption. Over the next year, real wages are likely to see limited growth as labor markets, which somewhat lag changes in the broader economy, are likely to struggle,” Oxford Economics said.
“What’s more, debt among lower-income households has rapidly increased, especially in Thailand. For these reasons, we maintain our view that Southeast Asian domestic demand will turn soft for a relatively prolonged period,” it added.
This will be exacerbated by high inflation. Oxford Economics said inflation may not return to pre-Covid rates even if the rise in commodity prices have slowed.
The think tank forecasts that Southeast Asia’s Consumer Price Index (CPI) inflation will be 3.5 percent this year – down from 4.6 percent in 2022 – before it falls to 2.4 percent in 2024.
But the slowdown in inflation may not be sustained on the back of rising food and energy prices. Part of the reason for this is the El Niño phenomenon.
“One issue is whether falling inflation will be sustained over the medium term. It’s an open question, but one thing we can be relatively certain about is that returning to old inflation levels will require a lower growth trajectory – perhaps significantly lower,” Oxford Economics said.
“It’s likely that inflation won’t return to its old pace, largely because some supply-side bottlenecks may take time to ease. The main risk in the short term appears to be rising food and energy prices,” it added.
In the Philippines in August, inflation again increased to 5.3 percent as successive typhoons have caused commodity prices to surge with vegetables like tomatoes and the country’s staple, rice, leading the charge.
The poorest Filipinos experienced an even higher rate of inflation at 5.6 percent as food inflation for the bottom 30-percent income households at the national level moved at a faster pace of 7.7 percent in August 2023 from 6.1 percent in July 2023 and 7.1 percent in August 2022.
The PSA explained that the impact of more expensive food items is greater among the poor because a larger part of their income is allocated for food. This does not mean the poor eat more, but this is a function of their small incomes.
It added that paying for the same goods that richer households pay for at the same prevailing prices means a larger part of the poor’s meager income goes to food expenses.