The World Bank’s Global Economic Prospects report claims global economic growth this year will be only 1.7 percent. For developed countries, expectations are even more pessimistic: 0.5 percent for the USA (-1.9 p.p.) and a flat 0 percent for the Eurozone countries (-1.9 ppt). Global trade promises 1.6 percent growth (-2.7 p.p.).
These economic expectations are set to be the third-worst annual result in almost three decades, leading to a significant segment of economists being inclined to consider that we are entering recessionary territory.
Other authoritative sources offer similar forecasts. For example, the January issue of the Chief Economists Outlook magazine by the World Economic Forum states that two-thirds of expert respondents expect a global recession in 2023.
The following reasons are the most often cited for the stagnation of the global economy: geopolitical instability, widespread inflation, a decline in investment activity, interruptions in energy supplies, an increase in the risk of default on debt obligations in the United States, debt overload and COVID restrictions on the Chinese economy. Naturally, these large-scale destabilization processes are not easy to stop, and their development will only continue to accrue negative effects on global economic activity.
At the macro-regional level, however, it is clear that expectations in different parts of the world vary quite significantly. Thus, the aforementioned World Bank report states that, for developing countries, growth in 2023 will be 3.4 percent, which is only 0.8 percentage points lower than the previous forecast. The Chief Economists Outlook claimed that its respondents in Europe expect weak economic growth (100%) and high inflation (57%) respectively, while those in the East Asia & Pacific region were at 37 percent and 16 percent respectively.
Indeed, despite the globalization of the world economy, the impact of the next global crisis — although undoubtedly present — will manifest itself in very different ways in different parts of the world. The main negative factors are the Russian invasion of Ukraine (for Europe) and the state budget deficit (for the United States). Therefore, the continents where these factors manifest themselves directly feel the most negative effect. In other regions of the planet, the negative impact will be weakened. Moreover, for emerging markets, difficult times can catalyze the growth of important areas that would be much more difficult to budge in an era of global stability.
The resilient growth of the Philippine economy
Amid recession concerns, however, the Philippines is showing signs of resilient growth — with financial technologies expected to play an increasingly significant role as the country continues to become a more digital economy.
The country promises to remain one of the strongholds of economic stability with positive expectations, with its government sharing this confidence.
Despite rising inflation, we observe the following:
- The country’s gross domestic product (GDP) is moving towards sustainable growth, following the decline in Q2/22 (by a mere -0.1 p.p. compared to the previous quarter), demonstrating growth of 3.3 and 2.4 p.p. in Q3 and Q4, respectively. The cumulative annual increase in national GDP was 7.6 percent. The growth drivers are very harmonious and multifaceted: the service sector, repair, finance and insurance, real estate, the industrial sector;
- The country’s balance of payments, as of December, is improving (showing a monthly surplus of US$612 million). This means that more money is coming into the country than it is leaving it. Interestingly, economists note that the reduction of the country’s trade deficit to the lowest level in more than a year (with a further positive forecast) is largely due to global cataclysms: falling prices for oil and other goods, as well as a possible recession in the U.S. There are also positive factors: the activation of domestic business after the recovery from the consequences of the pandemic, the opening of the country to foreign tourists, the growth in outsourcing revenues and the volume of money transfers from Overseas Filipino Workers (OFWs);
- Both consumer spending (+7% in Q4/22) and borrowing volumes continue to grow, revitalizing the domestic economy.
Fintech remains a main driver of digitalization
The country’s digitalization has also laid essential groundwork for such strong standing, the significance of which will only grow over time.
Our own analysis recently found out that among the Southeast Asian countries, it is in the Philippines that the weight of digital activity in the overall composite development index is the largest (22.6%).
The Philippines’ progressive digital transformation strategy, numerous e-governance projects, the PhilSys national identification system, government programs to expand public access to the Internet, digitalization of micro, small and medium enterprises, the Digital Cities 2025 initiative are just some of the major steps that are rapidly making the country more and more digital.
Talking numbers alone, accelerating digital transformation in the Philippines promises to generate direct economic benefits of up to 5 trillion Philippine pesos (US$101.3 billion) by 2030.
Naturally, one of the main drivers of national digital transformation is and will be financial technologies. To see this, one would simply need to take stock of various large-scale initiatives in one way or another related to this field. These include the transition of the national economy to being “cash-lite” (where 50% of transactions are digital), the National Strategy for Financial Inclusion, and many others.
At this stage, these technologies are becoming an increasingly important means of saving time and human resources, optimizing the supply chain, directly benefiting from minimizing costs, etc. Increasingly active use of fintech solutions in the era of the global crisis is a guarantee of maintaining the rapid development of the national economy and strengthening its position relative to the global state of things.
Even in less volatile times, the Philippines attracted consistently high attention from international financial businesses (typically fintech). Now, this “bay of stability” in the raging economic ocean promises to become one of the few places to compensate for the fall in income in other local markets. Our forecast: in the very near future, the country should expect a surge in activity of foreign players. Naturally, local business will not sit idly by, which altogether promises to result in a significant revitalization of the national financial background. For example, growing tourism will entail the increased use of payment systems and electronic wallets, online marketplaces, etc.
With continuing inflation and growing material demands of Philippine citizens, their need to close financial gaps in the personal and family budgets will increase. Digital lending services—both from licensed online banks and services offering BNPL (buy now, pay later), lines of credit, and other advanced financial products—is a key example, as they are able to handle the main wave of growing demand, given their speed of operation, loyalty in terms of customer requirements and rapidly growing popularity of online financial solutions.
In conclusion: it is hoped that despite ambiguous times, this period becomes a clear milestone for the Philippine economy, with the well-being of its population soaring. The growing influence of fintech solutions into the lives of Filipinos is a definite early sign of this bright future.
Farit Shakirov is the country manager of consumer finance company Digido.
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