Drag is defined as “a force acting opposite to the relative motion of any object”. Imagine a swimmer. The water pushes against the swimmer as he moves. And it slows him down.

But, this is in the context of the physical sciences. What about in economics?

What’s Behind the Upswing

In our last column, we discussed the current state of the Philippine economy. Consumer spending has sped up because of loosened restrictions. Investors are spending more on fixed capital. Industry and services are kicking into high gear. And unemployment is returning to pre-pandemic levels.

These are the factors that are pushing our economy forward from the pandemic. What forces are going against us? What might drag us downwards?

Inflation, Underemployment, COVID-19.

Inflation is the first factor. And, it is the most visible. Russia’s invasion of Ukraine has driven oil prices upwards. As a result, our inflation rate has jumped from 4.0% in March to 4.9% in April and 5.4% in May 2022. This will definitely affect the purchasing power of consumers and dampen domestic demand.

Rising inflation increases the pressure on the government to provide some form of aid. However, our high level of debt reduces the resources available. New or higher taxes may be possible.

Underemployment is the second factor. Underemployment typically refers to employed persons who express the desire to have additional hours of work in their present job or an additional job or have a new job with longer working hours. This metric has increased to 15.8% in March 2022. Many Filipinos are still looking for additional work.

Finally, a surge in COVID-19 cases is always possible. OTCA recently reported that a small surge of cases might occur. Cases will peak by mid-July.

Inflation, underemployment, and a surge in cases. These are the three factors that may drag the economy downwards.

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