Fitch Solutions Country Risk and Industry Research, a unit of Fitch Group, revised upward its 2021 GDP growth forecast for the Philippines to 4.5 percent from 4.2 percent earlier, taking into account the strong 7.1-percent expansion in the third quarter and the expected sustained recovery of private spending.
Fitch Solutions, however, revised downward the 2022 GDP forecast to 6.5 percent from 6.8 percent on the back of “low” vaccination rates in the country amid the continuing global health crisis.
“We at Fitch Solutions now forecast the Philippine economy to grow by 4.5 percent in 2021 and 6.5 percent in 2022, revised from 4.2 percent and 6.8 percent, respectively. In the third quarter of 2021, the Philippine economy posted strong quarter-on-quarter growth of 3.8 percent, following a contraction of 1.4 percent in second-quarter 2021 because of lockdown measures,” it said.
It said “a gradual relaxing of domestic mobility restrictions and continued support measures from policymakers helped propel activity, bringing the economy closer to its pre-pandemic output levels. There were signs of a continued recovery in the fourth quarter, with mobility data signaling increased domestic activity and vaccination rates rising in the key economic hub of Manila, it said.
“Nevertheless, the Philippines still remains vulnerable to COVID-19 outbreaks given disparities between regional vaccination rollouts and the lower efficacy rates of the vaccines administered,” Fitch Solutions said.
Data showed that as of Oct. 21, only 22.6 percent of the population were fully vaccinated and the lower efficacy of the vaccines being used could mean that there was a greater need for booster shots, it said.
“Thus, in the near term, further disruptions could weigh on the pace of the economic recovery, and the prospects of a revival in the country’s tourism sector remain dim. While we expect economic growth to increase further in 2022, remaining challenges will stop the Philippine economy returning to its pre-pandemic growth trajectory,” it said.
Fitch Solutions also revised upward its private consumption growth forecast to 3.7 percent this year from 3.5 percent previously, before rebounding to 5 percent in 2022.
“A recovery in private consumption is key to the Philippines’ real GDP growth, given the fact that private consumption accounts for around 74 percent of output. The easing of domestic restrictions in Q421, particularly around metro Manila, will help bolster private consumption,” it said.
It cited the latest Google mobility data, showing a strong rebound in domestic activity, with data for retail and recreation and grocery and pharmacy mobility signaling the highest level of activity since the onset of the pandemic in the second quarter of 2020.
Fitch Solutions expects the gradual easing of domestic restrictions in 2022 to provide some tailwinds to consumption but it said weakened labor-market dynamics might potentially curb the extent to which consumption rebounds.
It said net exports would prove to be a drag, and might subtract 2.1 percentage points and 1.1pp in 2021 and 2022, respectively.
“Continued elevated shipping costs and global supply-chain constraints will pose headwinds to Philippines’ trade activity through fourth quarter 2021 and first quarter 2022. As border restrictions ease and global supply chains gradually normalize, we expect slowing growth in China to prove the biggest drag on regional trade and external demand for Philippine goods,” it said.
It said that while tourism activity would begin to resume in 2022, the Philippines’ relatively low vaccination rate might deter tourists or result in continued travel restrictions to the country, capping the extent to which the tourism sector could recover.