The Philippine economy will face a “slow start” in 2021 as key areas remain under community quarantine, Acting Socioeconomic Planning Secretary Karl Kendrick T. Chua said.
“To be honest, this year will be a slow start…We will begin to see year on year positive, I think starting the second quarter,” Mr. Chua said in a briefing on Friday.
Mr. Chua said the improvement of the coronavirus disease 2019 (COVID-19) situation in neighboring countries and their gradual reopening will have a beneficial impact on the Philippines as well.
“We rely on the global supply chain, we also rely on the movement of people for our skilled workers and other OFWs (overseas Filipino workers). What we saw is that the recovery of our neighbors actually helped in the recovery of our exports to these countries,” he said.
Mr. Chua pushed for further initiatives to open up the economy in order to bring in more investments and innovations to support recovery.
The economy fell into its worst recession since World War II as gross domestic product (GDP) contracted 9.5% in 2020 due to the pandemic and subsequent lockdown measures.
This year, the government expects the economy to grow by 6.5% to 7.5%, but GDP is seen only to recover to its pre-pandemic level by the first half 2022.
The Health department reported 1,849 new COVID-19 infections on Friday, bringing the total to 521,413 cases.
Meanwhile, the ASEAN+3 Macroeconomic Research Office (AMRO) raised its growth forecast for the Philippine economy in the next two years.
AMRO said GDP will likely grow by 7.4%, higher than the 6.7% forecast in September. In 2022, the think-tank sees the economy growing by 7.8%. The growth outlook is dependent on the country’s mass vaccination program and sustained policy support, which are expected to bring back confidence.
“As the recovery remains fragile and is at its early stage, the government should maintain sufficient policy support to ensure a robust economic recovery while safeguarding against potential macroeconomic and financial risks,” AMRO Lead Economist Siu Fung Yiu said in a note on Friday.
AMRO warned that businesses are at risk of “potential financial distress with implications for lower potential growth” caused by the scarring effects of a prolonged downturn.
“Structural policies and reforms are needed to enhance the resilience of the economy to shocks and facilitate the transition to the post-pandemic new normal. The government’s efforts to promote digitalization, invest in infrastructure, and improve the “doing business” environment, will facilitate the process,” it said.
AMRO also noted that the country’s business environment is dominated by small businesses, making it vulnerable to shocks from the pandemic.
“Effective policy transmission faces several practical challenges that may be improved with greater financial inclusion. As such, the Philippines is likely to experience some reversal of social economic gains,” it said.
Policy makers should ensure the effectiveness of monetary transmission and lending programs for small businesses, AMRO said. It also stressed the need for the central bank to collaborate with stakeholders and government agencies to carefully time the lifting of relief measures.
Separately, Fitch Solutions Country Risk & Industry Research said the country’s economy is expected to grow by 7.6% this year, higher than the 6.2% projection it gave in August. But it warned a spike in COVID-19 cases will weigh on its recovery amid a “slow vaccination rollout”.
“Risks are tilted heavily to the downside, with the Philippines highly vulnerable to another tightening of domestic restrictions to curb domestic COVID-19 outbreaks,” Fitch Solutions said in a report on Friday.
“Vaccinations should begin in February but with a population of around 109 million and distrust towards vaccines, the economy’s vulnerability to further COVID-19 outbreaks will remain high through 2021,” it added.
Fitch Solutions said the accommodative fiscal support and the likely upturn in global trade will support further recovery, but will not be enough to offset disruptions to private domestic demand. —Luz Wendy T. Noble