The Philippine economy is expected to sustain its recovery from the impact of the COVID-19 pandemic and may grow above 6 percent in 2022 and 2023, according to a joint report by two Asian think tanks.
Korea Institute of Public Finance and ASEAN+3 Macroeconomic Research Office said in a joint report titled “The Impact of COVID-19 on Regional Economies and Policy Responses” said while the Philippine economy was expected to recover further in the succeeding years, the government should watch out for a resurgence of the disease and the possible emergence of another pandemic to avoid economic scarring.
“On average, the consensus is that GDP will grow by 6.7 percent in 2022, before settling at about 6.3 percent in the medium term. Closely watched indicators, such as remittances, seen to lead household demand, and the headline Purchasing Managers’ Index for manufacturing that reflects new orders, including new export orders, support expectations of a revival in economic activity,” the research said.
The economy rebounded in 2021 with a growth of 5.7 percent, a reversal of the 9.6-percent contraction in 2020 at the height of the pandemic.
Data from the Philippine Statistics Authority showed that in the first three quarters of 2022, the GDP growth averaged 7.7 percent, following a 7.6-percent expansion in the third quarter.
The report, however, took note of new COVID cases rising again in certain parts of the world such as in China.
“Given the severity of the pandemic’s economic fallout worldwide—beginning with sharp declines in economic activity and large job losses, and culminating with high inflation due to both supply and demand disturbances—greater spending on disease prevention and health care and social service delivery systems seems warranted,” the report said.
It said valuable public investments in this area would be on last-mile vaccination and administration of booster doses for COVID-19, the further development of testing and tracing capacity and reach to cover the more remote areas of the country and digital delivery of social protection, which could help minimize corruption and other leakages as well as lower infection risk.
The report said one could not overemphasize the urgency of preventing a highly contagious disease from spreading in large populations with weak public health systems, where virus mutations may also go on uncontrolled.
“As seen in the Philippines and similar developing countries, the alternative of a blanket lockdown to contain the COVID-19 disease was extremely costly in terms of never-before-seen drops in household spending and business investment, and the curtailment of services, with some subsectors inevitably closing and unlikely to be revived,” it said.
The report said the government would have to spend more to avert the risk of economic scarring due to a protracted pandemic crisis, but it would also need to have a sound fiscal strategy to maintain macroeconomic stability.
It said policy makers would need to optimally time the Philippines’ exit strategy for COVID-19 support measures to minimize macroeconomic risk. Premature withdrawal of monetary and fiscal support could derail economic recovery and heighten business uncertainty, while long-drawn-out support could lead to longer-term financial fragility, it warned.
It said the first pivotal period had been the initial COVID-19 outbreak during the early part of 2020, when lockdowns were first implemented. The Bangko Sentral ng Pilipinas then had to provide quick liquidity support to loosen financial conditions and avert instability through policy rate and reserve requirement cuts and regulatory relief.
“The second crucial period spanned the persistent lockdowns that prolonged economic weakness, heightening the risk of negative spillovers into the financial sector. This lasted for a period of roughly two years. The third critical period could occur with the unwinding of monetary and fiscal policies, the timing of which may be difficult to ascertain as external risks have multiplied,” the report said.
Finance Secretary Benjamin Diokno said last week the “worst is over” for the Philippines, and the economy may expand faster than the 6.5 to 7.5 percent target range in 2022 despite the threats of continuing domestic and external headwinds.
“After the highly unprecedented pandemic, followed by Russia’s invasion of Ukraine and a weakening China growth, the global economy is likely to face a mild recession next year. But for the Philippines, the worst is over, and better years are expected,” Diokno said in his assessment of the economy.