Both the International Monetary Fund and the Oxford Economics do not expect the Philippine economy to rebound strongly contrary to forecasts by local economic managers. But they all agree that a faster vaccine rollout so that a more vigorous rebound can be realized.
STATEMENTS from the International Monetary Fund of a “shallower recovery” and from the Oxford Economics that the country will not have a strong rebound run counter to the optimism that Philippine economic managers have that growth will meet earlier targets.
Vaccination is key
But one thing the foreign observers and local economic managers agree on is the need to speed up vaccination to the widest segment of the population so that a more vigorous recovery can be attained.
But for now, everything hangs on the supply of vaccines that will be made available to the Philippines.
IMF’s Malhar Nabar, head of the World Economic Studies Division, told reporters at the recently concluded annual meetings of the World Bank Group and IMF in Washington, that the IMF expects a shallower recovery for the Philippines in the second half due to the resurgence of COVID cases.
Nabar said that the Philippines is on its way to recovery from the pandemic-induced recession.
Shallower recovery
“We also expect a shallower recovery in the second half of this year because of renewed concerns about caseloads and the spread of the pandemic,” Nabar said.
The IMF earlier slashed its forecast on Philippines’ gross domestic product (GDP) growth to 3.2 percent this year and to 6.3 percent next year.
“The Philippines is coming out of a very steep contraction last year. The recovery is underway. We expect the economy to grow 3.2 percent this year, but we have downgraded the projection for this year because of developments in the second quarter where the pandemic took a turn for the worse and caseloads went up,” Nabar said.
Accelerate vaccination
The IMF stressed the need to accelerate the COVID vaccine rollout to pave the way for a stronger recovery.
“But going forward into 2022, we think with the continued vaccine rollout, continued policy support, this should support a continued recovery in the Philippines’ economy, and we project a growth at about six percent in 2022, also supported by improvements in trading-partner growth,” Nabar said.
The Philippines slipped into recession as the GDP shrank by a record 9.6 percent last year.
Second wave
“The Philippines is another country that was hit hard by the second wave, but at the same time, they have had additional supplementary budgets that they rolled out that helped in terms of the recovery,” IMF chief economist Gita Gopinath said.
The Philippines exited the pandemic-induced recession with a strong GDP growth of 11.8 percent in the second quarter, a reversal of the 3.9 percent contraction in the first quarter.
Achievable
However, economic managers through the Development Budget Coordination Committee (DBCC) lowered this year’s GDP growth anew in August to a range of four to five percent instead of six to seven percent.
Finance Secretary Carlos Domiguez, Socioeconomic Planning Secretary Karl Chua and Bangko Sentral ng Pilipinas Governor Benjamin Diokno are confident that this year’s target can be achieved.
Not enough
With quarantine restrictions eased, the country’s economic momentum would pick up in the last quarter but not enough to pull off a strong rebound as projected by government, said Makoto Tsuchiya, assistant economist at Oxford Economics, in an email to the Star.
For the sixth time, Oxford slashed its GDP forecast to 3.4 percent from 3.5 percent. Its original forecast was a high of eight percent. Oxford’s new forecast is much below the government’s revised forecast of 4 to 5 percent.
“We expect that domestic demand remained under pressure for much of the third quarter given the Delta variant-driven surge in new COVID-19 cases and tight restrictions, though some measures have started to ease since early August,” Tsuchiya said.
The government reimposed in August the third round of lockdown in Metro Manila and other provinces amid high cases due to the Delta-driven surge.
Slower growth
While the economic team already said growth likely slowed in the third quarter, they remain confident of hitting the full year target, as more businesses and sectors are allowed to operate again and as consumption is expected to pick up with the holiday season just around the corner.
“We believe sequential momentum will pick up in the fourth quarter and into 2022, but the low vaccination rate makes the country vulnerable to setbacks,” Tsuchiya said.
“Foreign demand should fare better, but prolonged supply disruptions are a main downside risk,” he said.
The government has already revised its target of achieving herd immunity as vaccination is still at around 20 percent, just more than two months before the year ends.
The Department of Health said vaccinating 70 percent of the population is feasible by the first quarter of 2022 at the earliest.
Inflation forecast
Further, Oxford said inflation in Southeast Asia will edge up in the coming quarters given high commodity prices and logistical costs and softer currencies.
But, government measures, particularly electricity discounts and fuel subsidies across several economies, and soft demand will keep a lid on inflation.
“The Philippines is the key exception as inflation rose and is set to hover around the top of the central bank’s inflation range well into the first half next year,” Oxford said.
Low interest rates
With that, Oxford expects the Bangko Sentral ng Pilipinas to keep interest rates at record lows to support economic recovery.
With the latest forecast, among the emerging markets (EMs), the Philippines will now lag in terms of economic growth as compared with India’s 7.9 percent and China’s eight percent. EMs, on average, are expected to post an average 6.6 percent growth.
In the ASEAN region, the country’s GDP growth is also seen to be lower than that of Vietnam’s 3.7 percent and Malaysia’s 3.5 percent but higher than Indonesia’s 3.3 percent and Thailand’s 1.6 percent.
By 2022, the Philippine economy is seen growing to 7.1 percent and further picking up by 8.2 percent in 2023. However, it will slow down to seven percent by 2024.
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