The International Monetary Fund said Tuesday it raised its 2021 growth forecast for the Philippines to 6.9 percent from the 6.6-percent estimate it made in January, taking into account the expected recovery of the global economy.
It raised the growth forecast in its April 2021 World Economic Outlook report despite the imposition of tighter lockdown measures in Metro Manila and surrounding provinces for two weeks. The country’s gross domestic product contracted 9.5 percent in 2020, the worst since the end of World War 2.
Its growth projection for the Philippines is also the highest among ASEAN-5 economies. It expects Indonesia to grow 4.3 percent; Thailand, 2.6 percent; Vietnam, 6.5 percent; and Malaysia, 6.5 percent.
The IMF also retained the 2022 growth forecast of 6.5 percent for the Philippines, the second fastest behind Vietnam’s 7.2 percent, but higher than Malaysia’s 6 percent, Indonesia’s 5.8 percent and Thailand’s 5.6 percent.
The ASEAN-5 economies are seen to grow by 4.9 percent this year, a turnaround from the 3.4-percent contraction in 2020. The group is also anticipated to grow by 6.1 percent in 2022.
IMF resident representative to the Philippines Yongzheng Yang said in an emailed message to Manila Standard that the Philippine economy ended 2020 with stronger-than-expected growth in the fourth quarter.
“This momentum signals a stronger recovery this year. The increased fiscal stimulus in the 2021 budget should also help boost economic activity. Taking into account the unused Bayanihan II funds to be disbursed this year and carry-over funds from the 2020 budget, government spending in 2021 is likely to be higher than anticipated in our January WEO forecasts,” Yang said.
“Nevertheless, the growth forecasts are subject to substantial uncertainty. In particular, recent hikes in virus infections pose a significant downside risk, as tightening quarantine measures could dampen economic activity,” Yang said.
Yang said it would be critical to bring the current spikes of virus infections under control, including by strengthening containment measures and accelerating vaccinations.
The WEO report also provided an improved outlook globally. After an estimated contraction of 3.3 percent in 2020, the global economy is projected to grow 6 percent in 2021, before moderating to 4.4 percent in 2022.
The contraction for 2020 is 1.1-percentage-points smaller than projected in the October 2020 World Economic Outlook, reflecting the higher-than-expected growth outturns in the second half of the year for most regions after lockdowns were eased and as economies adapted to new ways of working.
The projections for 2021 and 2022 are 0.8 percentage point and 0.2 percentage point stronger than in the October 2020 WEO, reflecting additional fiscal support in a few large economies and the anticipated vaccine-powered recovery in the second half of the year.
Global growth is expected to moderate to 3.3 percent over the medium term—reflecting projected damage to supply potential and forces that predate the pandemic, including aging-related slower labor force growth in advanced economies and some emerging market economies, it said.
“Thanks to unprecedented policy response, the COVID-19 recession is likely to leave smaller scars than the 2008 global financial crisis. However, emerging market economies and low-income developing countries have been hit harder and are expected to suffer more significant medium-term losses,” the report said.
The World Bank last month warned that slow vaccinations in the Philippines because of people’s hesitancy on the vaccines and the government’s struggle to conduct large-scale inoculations could delay economic recovery and take away 1-percentage point from the potential gross domestic product growth this year.
Aaditya Mattoo, the bank’s chief economist in the Asia-Pacific Region, said in an online briefing that the Philippines might grow this year by 5.5 percent.
This latest projection was lower than the 5.9 percent estimate it made in December 2020. For 2022, Mattoo expects the Philippine economy to expand by more than 6 percent.
“The big problem in the Philippines is the hesitancy or people’s skepticism about the COVID vaccines. Also, [another problem] is the [government’s] capacity to implement a large-scale vaccination,” Mattoo said.
Mattoo said that compared to China and Vietnam that recovered faster to the levels seen before the pandemic struck, the Philippines might return to the pre-pandemic levels latter part of 2022 due to “deep scarring caused by the pandemic.”