Economic managers said the economy has recovered this year from the devastating impact of the COVID-19 pandemic that triggered a record 9.6-percent contraction in 2020, the worst GDP performance since World War 2.
Finance Secretary Carlos Dominguez III, the head of the Duterte administration’s economic cluster, said in a forum in middle of this month that the country has hurdled the obstacles presented by the pandemic. He said the country’s strengths remained intact all throughout the existence of the global health crisis.
Dominguez specifically cited the country’s investment-grade ratings that never experienced a downgrade since the start of the pandemic.
“I believe that we are over the hump on this COVID-19 contagion. I said earlier that this is not a short battle. This is not a sprint. This is a marathon,” Dominguez said.
Judging from past contagions, he said this does not come and go quickly. All throughout this difficult time, he said the government tried to preserve the financial strength of the Philippines.
“… And to use the financial strength that President Duterte has built up since 2016, which I must admit was building on the successes of the administration of Noynoy Aquino,” he said.
He said the current administration built on it and tried to improve it a little bit which “put us in a very good position.”
“We have been able to last this contagion without a downgrade. Of course, Fitch [Ratings] put our outlook to negative earlier this year but that is not a downgrade,” he said.
Dominguez expects gross domestic product growth in the last quarter to hit near 7 percent, driven mainly by the impact of a faster pace of vaccination program that results in more business activity and increased mobility during the period.
The Finance chief said the economic performance in 2021 “exceeded expectations,” citing the surprise 7.1-percent GDP expansion in the third quarter that brought the economic growth in the first three quarters to 4.9 percent.
Dominguez said “backed by massive vaccination rollout,” the economy could perform well in the coming months.
As of Dec. 17, 2021, about 100,600,809 total vaccine doses have been administered throughout the country, with 43,351,844 being fully vaccinated, and 1,081,200 booster doses administered.
“Next year, we are confident that we can grow by 7-9 percent as [the latest] numbers are in our favor,” Dominguez said.
Finance Undersecretary Gil Beltran, the DoF’s chief economist, said based on his estimates, the fourth-quarter GDP would be “very close to 7 percent.”
Higher growth forecasts
The inter-agency Development Budget Coordinating Committee in the middle of this month revised upward its gross domestic product growth target this year to 5 to 5.5 percent from 4 to 5 percent previously, taking into account the 7.1-percent expansion in the third quarter.
The DBCC is composed of the heads of the Department of Finance, the National Economic and Development Authority, and the Department of Budget and Management.
“Despite the imposition of stringent quarantines to contain the spread of the threat of the Delta variant, the Philippine economy grew by 7.1 percent in the third quarter of 2021. As we continuously relax restrictions and increase mobility, economic performance is expected to accelerate further in the last quarter of the year,” economic managers said in a joint statement.
“Hence, the growth assumption for 2021 was adjusted upwards to 5 to 5.5 percent, while growth targets for the medium term were retained at 7 to 9 percent for 2022 and 6 to 7 percent by 2023 and 2024,” they said.
They said with the strong economic performance in 2021, they are optimistic that the country’s GDP would return to its pre-pandemic level by 2022.
Likewise, the Asian Development Bank revised upward its growth forecast for the Philippine economy this year to 5.1 percent from 4.5 percent made in September, taking into account the acceleration in the government’s COVID-19 vaccination program and a sharp drop in new infections.
The supplement to the Asian Development Outlook (ADO) 2021 report also showed that the Philippine economy will grow by 6.0 percent in 2022, up from the previous forecast of 5.5 percent.
“The Philippine economy has shown impressive resilience,” ADB Philippines country directors Kelly Bird said.
Bird said growth momentum has clearly picked up on the back of the government’s vigorous drive to vaccinate Filipinos against the
COVID-19 virus. He said public spending on infrastructure and continued vaccination of the population will also help the country further accelerate its recovery in 2022.
The bank said vaccination has allowed the economy to slowly reopen, boosting consumer and business confidence.
Also this month, the World Bank raised its growth forecast for the Philippines this year to 5.3 percent from its previous estimate of 4.3 percent.
In the bank’s online briefing on the Philippines Economic Update titled Regaining Lost Ground, Revitalizing the Filipino Workforce, World Bank senior economist Kevin Chua said the economic rebound gained momentum in the third quarter of 2021 despite another COVID-19 wave.
“The Philippines has, so far, faced its worst infection wave in September when the seven-day daily average reached about 21,000 cases due to the Delta variant. In response, the authorities reimposed stringent mobility restrictions in Metro Manila and other key metropolitan areas,” Chua said.
“Nonetheless, compared with previous waves, domestic activity has been less sensitive to infections. Public containment measures constrained overall mobility less, while households and firms have learned to cope with infections and diminished mobility,” he said.
“As a result, the growth momentum was not severely hampered, and the third-quarter growth surprised on the upside, exceeding market expectations,” Chua said.
By 2022, Chua expects GDP growth to expand further by 5.9 percent and 5.7 percent in 2023, for a two-year average of 5.8 percent.
Chua said the global economic recovery strengthened the country’s exports, although services trade remained weak. He said the fiscal stance remained supportive of economic recovery, but the policy space was narrowing.
The bank expects government spending on infrastructure to buoy growth, aided by the steady progress in vaccination leading to greater people mobility and the revival of businesses. Barring a new uptick in COVID-19 cases, household consumption is projected to recover, anchored on rising remittances and improving incomes as more people regain or find new jobs.
Ndiame Diop, World Bank country director for Brunei, Malaysia, the Philippines and Thailand, said in the same briefing that the new Omicron variant of COVID-19 “has added a layer of uncertainty, but economic reopening, along with progress in vaccination, is clearly strengthening domestic dynamism and market confidence.”
“As the recovery gains traction, it will be important to enhance private sector participation in the recovery by deepening current efforts to make the country’s business environment favorable to job creation, while upskilling the workers so that they can benefit from new or emerging job opportunities.”
But Diop said that the reported waning vaccine efficacy might complicate business decisions in the future.
The Philippines underwent two surges of COVID-19 infections this year, first in March-April and in August-September due to the more infectious Delta variant. In both instances, authorities reinstated strict mobility restrictions in Metro Manila and nearby provinces, and key metropolitan areas.
World Bank officials, however, warned that despite encouraging trends, the COVID-19 pandemic remained a major risk to the country’s growth prospects.
They noted that even in countries with high vaccination rates, infections have continued to spread, albeit with greatly reduced severity of illness, hospitalization, and mortality. Variants of concern, breakthrough cases, and waning vaccine efficacy have highlighted the complexity of economic reopening.
“Speeding up vaccination especially in areas outside the National Capital Region and sustaining the observance of health protocols including masking and maintaining social distancing are measures that remain important as the country navigates the challenges of reviving the economy,” Chua said.
Chua said social protection measures, including the country’s cash transfer programs, remained important measures to mitigate the adverse impact of the pandemic on livelihoods, health, and education, especially among poor families.
Sustained policy support
The Bangko Sentral ng Pilipinas has maintained the record-low policy interest rate of 2 percent for the entire 2021, fulfilling its promise of supporting the economy until it fully recovers from the impact of the COVID-19 pandemic.
In its meeting this month, the Monetary Board, the policy-making body of Bangko Sentral, kept the interest rate on the overnight reverse repurchase facility remained at 2.0 percent. The interest rates on the overnight deposit and lending facilities were likewise kept at 1.5 percent and 2.5 percent, respectively.
In 2020, the BSP cut the policy rate by a cumulative 200 basis points to 2 percent, and also reduced the reserve requirement of banks by 200 basis points to 12 percent, in a bid to unleash additional liquidity into the financial system so that banks could lend more to individuals and firms for productive purposes.
In maintaining the policy rate for the entire year, BSP also took into consideration the manageable inflation environment, although at some point it breached the target range of 2-4 percent set for the year.
BSP Governor Benjamin Diokno said the projected inflation path remained within the inflation target band of 2-4 percent over the policy horizon. Inflation in November 2021 eased further to a four-month low of 4.2 percent from 4.6 percent a month ago, pulled down mainly by lower prices of food and non-alcoholic beverages.
The November print was still higher than the 3.3 percent a year ago. This brought the average inflation in the first 11 months to 4.5 percent, more than the target range of 2 to 4 percent earlier set by the government.
Diokno said the emergence of new COVID-19 variants continued to pose downside risks to the outlook for growth and inflation.
Nonetheless, he said the Monetary Board observed that economic growth now appeared to be on firmer ground, supported by the government’s accelerated vaccination program and calibrated relaxation of quarantine protocols.
“In particular, credit activity has gradually recovered in recent months, reflecting improved business activity and market sentiment,” he said.
He said the Monetary Board was seeing enough scope to keep a patient hand on the BSP’s policy levers owing to a manageable inflation environment. At the same time, downside risks to the economic recovery emanate from the emergence of new COVID-19 variants as well as the potential tightening of global financial conditions.
“Hence, preserving ongoing monetary policy support at this juncture shall help sustain the economy’s momentum over the next few quarters,” he said.
Encouraging numbers
The Bangko Sentral has revised upward the target for net inflow of foreign direct investments this year to $8 billion from $7 billion previously, taking into account the improving global economic outlook despite the prolonged impact of the COVID-19 pandemic.
BSP’s revision came after the latest data showed that net FDI in the first nine months alone already topped the $7 billion target, hitting $7.3 billion, up 43.8 percent from the $5.1 billion net inflow a year ago.
BSP said the remarkable performance of FDI in the period was mainly due to the 78.6-percent increase in non-residents’ net investments in debt instruments to $5.3 billion from $3 billion last year.
Further, it said reinvestment of earnings reached $865 million, up by 12.3 percent from the $770 million a year ago.
Meanwhile, non-residents’ net investments in equity capital (other than reinvestment of earnings) dropped by 15.7 percent to $1.1 billion from $1.3 billion in January-September 2020.
As a sign of improving global trade amid the pandemic, the country’s exports in the first 10 months jumped 16.1 percent year on year to $62.10 billion, with electronic products contributing the highest sales.
By commodity group, electronic products continued to be the country’s top export in October 2021 with total earnings of $3.65 billion. This amount accounted for 57.0 percent of the total exports during the period. This was followed by other manufactured goods with an export value of $350.18 million (5.5 percent); and other mineral products which amounted to $298.48 million (4.7 percent).
For the month of October, total export sales amounted to $6.41 billion, up at an annual rate of 2.0 percent, from an increase of 6.4 percent in the previous month. In October 2020, total export sales decreased at an annual rate of -0.9 percent.
Imports in the first 10 months hit $95.31 billion, an increase of 29.7 percent from the import value of $73.48 billion in the same period of 2020. Similarly, electronic products accounted for the highest import value among commodity groups.
Total imported goods in October 2021, which amounted to $10.43 billion, increased at an annual rate of 25.1 percent. In September 2021, the annual increase was recorded at 24.9 percent, while in October 2020, imports value decreased by -15.9 percent annually.
The country’s total external trade in goods in October 2021, which amounted to $16.84 billion, grew at an annual rate of 15.2 percent. In the previous month, the annual increase was recorded at 17.1 percent, while a decline of -10.0 percent was recorded in October 2020.
Meanwhile, the country’s unemployment rate decreased to 7.4 percent in October 2021 from 8.9 percent a month ago, the third-lowest rate this year, as more people were employed for the month compared to the same period last year, data from the Philippine Statistics Authority show.
In the Highlights of the October 2021 Labor Force Survey, PSA said the lowest reported unemployment rate was in July 2021 estimated at 6.9 percent, followed by 7.1 percent in March 2021. The unemployment rate was highest this year in September 2021 at 8.9 percent.
National statistician and civil registrar general Dennis Mapa said the employment situation in the country improved with a reported 43.83 million employed persons in October 2021 from 39.84 million in the same period last year.
In terms of magnitude, the total number of unemployed persons 15 years old and over in October 2021 was registered at 3.50 million. It was lower by 309,000 from the total unemployed persons reported in October 2020 (3.81million).
The Duterte administration’s economic managers–composed of Socioeconomic Planning Secretary Karl Kendrick Chua, Finance Secretary Carlos Dominguez III, and Budget Department officer-in-charge Tina Rose Marie Canda–said in a joint statement the October 2021 labor force survey results affirmed the soundness of the government’s push to safely reopen the economy, restore employment, and manage the spread of COVID-19 pandemic.
The massive vaccination rollout globally enabled major economies to reopen, boosting the deployment of overseas Filipino workers that resulted in sustained foreign exchange inflows into the country.
Latest data from the BSP show that cash remittances in the first 10 months jumped 5.3 percent to $25.929 billion from $24.633 billion a year ago, nearing the 6 percent growth target for 2021 set by the government.
The growth in cash remittances from the United States, Taiwan, and Malaysia contributed largely to the increase in remittances in January-October 2021, BSP said in a statement.
For the month of October alone, cash remittances increased by 2.4 percent to US$2.812 billion in October 2021 from US$2.747 billion registered in the same month in 2020.
Personal remittances, which include non-cash items, reached $3.117 billion in October 2021, higher by 2.4 percent than the $3.044 billion registered in the same month last year. This resulted in the increase in cumulative remittances by 5.4 percent to $28.816 billion in the first ten months of 2021 from $27.346 billion recorded in the comparable period in 2020.
Michael Ricafort, the chief economist of Rizal Commercial Banking Corp., said remittances remained a bright spot for the Philippine economy, as they near the highest since the pandemic started. This is despite the fact that more than 800,000 OFWs were repatriated since the pandemic last year, but some of whom already recovered or restored the jobs that they have lost as the global economy re-opened and recovered further from the adverse effects of the pandemic.
“OFW remittances and conversion to pesos are expected to seasonally increase in the fourth quarter especially towards the Christmas season, as consistently seen for many years and decades,” Ricafort said.
He said these could support faster growth in consumer spending, which accounts for at least 70 percent of the economy, and would also support economic recovery prospects, going forward, as a bright spot and a major pillar for the country’s economic recovery program.
Remittances account for around 10 percent of GDP annually. Last year, remittances slightly declined by 0.8 percent to $29.903 billion from the record $30.133 billion in 2019 as the pandemic impacted the deployment of overseas Filipino workers and many countries implemented stricter quarantine restrictions.
However, the 0.8-percent decline was better than the earlier forecast of a 20-percent contraction by some analysts at the height of the onslaught of the pandemic. This year, BSP projects cash remittances to grow by 6 percent on the back of improving the global economic outlook.
Renewed business and consumer sentiments
The business sentiment in the country is increasingly becoming optimistic amid the easing of COVID-19 restrictions and the faster pace of the government’s vaccination rollout, latest results of the Business Expectations Survey conducted by the Bangko Sentral ng Pilipinas show.
The survey revealed that in the fourth quarter this year, the outlook of business owners on the economy turned optimistic as the overall confidence index reverted to the positive territory at 39.7 percent—the highest level since the onset of the COVID-19 pandemic in the country in the first quarter of 2020—from -5.6 percent in the third quarter of 2021.
The positive index resulted from the combined effects of an increase in the percentage of optimists and a decrease in the percentage of pessimists.
“The respondents’ optimism was attributed to the easing of COVID-19 restrictions and opening of borders, increase in demand and sales, continuous vaccine rollout leading to herd immunity, seasonal factors such as the uptick in demand during the holiday season and start of mining and milling seasons, as well as the decreasing number of COVID-19 cases,” BSP said.
It also said the release of positive economic news, such as the real GDP growth of 7.1 percent in the third quarter of 2021, might have also influenced the more sanguine business expectations.
For the next quarter, the business sentiment further improved as the overall confidence index increased to 52.8 percent from 31.9 percent a quarter ago.
For the next 12 months, business sentiment was more optimistic as the overall confidence index increased to 67.6 percent from the previous quarter’s survey result of 56 percent.
And although the consumer sentiment weakened in the fourth quarter of 2021, it is more optimistic for the first quarter of 2022 and the next 12 months.
Based on the latest Consumer Expectations Survey, the consumer overall confidence index declined in the fourth quarter to -24 percent from –19.3 percent a quarter ago. The lower negative index recorded in the fourth quarter of 2021 showed that the number of households with pessimistic views increased relative to the number in the third quarter of 2021 and continued to surpass those with optimistic views.
“According to respondents, their weaker outlook during Q4 2021 was brought about by their expectations of the higher unemployment rate, low income, ongoing COVID-19 pandemic, higher cases, and restrictions/lockdown/travel ban, faster increase in the prices of goods, and less working family member,” BSP said.
But consumer sentiment for the first quarter of 2022 and the next 12 months improved as the confidence index increased to 9.3 percent and 23.6 percent from the third quarter 2021 survey result of 2.7 percent and 18.6 percent, respectively.
Respondents attributed their optimism in the next quarter to the expectations of availability of more jobs and permanent employment, additional and high income, effective government policies and programs, and good governance.
The Q4 2021 Business Expectation Survey was conducted from Oct. 8 to Nov. 18, 2021, involving 1,511 firms nationwide, consisting of 584 companies in the National Capital Region and 927 firms in the provinces.
Meanwhile, the Q4 2021 Consumer Expectation Survey was conducted from Oct. 1 to 13, 2021 involving 5,665 households nationwide.
Another challenge to the economy
Michael Ricafort, the chief economist of Rizal Commercial Banking Corp., said typhoon Odette’s drag on the country’s economy would be on the tangible damage on agriculture and the productivity losses brought about by the disruptions in business and other economic activities.
These productivity losses would be more evident in areas hit hard in the Visayas and Mindanao where there is no or limited electricity, shortages of water, telecommunications, fuel, and damage to infrastructure that also delayed the transport of goods and people.
He said these are creating some temporary shortage of fuel, drinking water, food, and other basic necessities for a few days or weeks until supplies normalize.
“There may also be temporary loss of employment and other economic activities until some reparation/restoration is already in place to allow resumption of business and other economic activities,” Ricafort said.
He also said the second nationwide vaccination program from Dec. 20 to 22, 2021 could also be delayed, especially in areas hit hard by the typhoon.
“There could also be some temporary increase in prices in areas hit hard by the typhoon, especially in the Visayas and Mindanao, another drag to 4Q 2021 GDP growth and could lead to some temporary spike in overall inflation,” he said.
But he said rehabilitation activities of areas hit by storm damage would ironically add to economic activities, just like in large storm damage in the past, such as the reparation and reconstruction of damaged homes, businesses, institutions, and other infrastructure that would entail additional spending by the private sector and the government.
These also include any financial assistance from other parts of the country and from the international community, thereby leading to increased economic activities and some pickup in GDP growth as an important offsetting factor.
“There would also be some increase in insurance claims on covered property damaged by Typhoon Odette, such as for businesses, other establishments, houses, vehicles, and other property,” he said.
The expected increase in the demand for repairs and purchases to replace damaged businesses, homes, vehicles, appliances, furnishings, infrastructure/facilities, and other property would spur greater business and economic activities; somewhat effectively offsetting the outright typhoon damage/losses on the economy, Ricafort said.
“As a rule of thumb, every P20 billion damage/losses due to the storms is equivalent to about 0.1 percent of GDP,” Ricafort said.
He further said the recovery by some businesses, individuals/households, and other institutions from the latest typhoon damage could take longer, especially for some hard-hit sectors, as could have been exacerbated already and still reeling from the losses and other adverse economic effects of the COVID-19 pandemic since last year.
He said these could increase the strains especially on the most vulnerable sectors that would require greater intervention and support measures from the government, thereby could widen the budget deficit and adding to the country’s debt stock.
The Department of Public Works and Highways said that the estimated partial cost of damage to national roads, bridges, and flood-control structures following the onslaught of Typhoon Odette as of Dec. 18 has reached P213.9 million.
Also, initial damage to agriculture due to Typhoon Odette reached P176.4 million, according to the Department of Agriculture-Disaster Risk Reduction and Management Operations Center.
