"The main risk to the outlook is the spread of newer, contagious COVID-19 variants."
The International Monetary Fund (IMF) has downgraded its Philippine economic growth rate forecast for 2021. The Fund is clearly worried about surging prices, the impact of lockdowns, and a possible new wave of COVID cases.
The economy is expected to grow by only 3.2 percent this year, down dramatically by 41 percent from the IMF's June forecast of 5.4 percent. The 3.2 percent GDP growth for 2021 is the lowest among projections for the Philippines. Most forecasts see a 4-percent growth, if not higher, for the year.
Assuming an economic output of P17 trillion and inflation at 4 percent, a 41-percent reduction in real output is equivalent to a loss to the economy of easily P1.224 trillion in nominal terms—money that could have created some 600,000 jobs.
The 3.2 percent is well below the government’s 4 percent-5 percent full-year target. However, the IMF sees an economic recovery of 6.3 percent in 2022, and 6.5 percent in 2023.
The economy contracted by 9.6 percent in 2020, the biggest cut since the war, including a 17-percent drop in output in the second quarter—the deepest decline in 100 years.
Inflation, after surging to a three-year high of 4.3 percent in 2020, will taper off to 3.3 percent by end-2021 and 2.9 percent in end-2022.
“We are slowly recovering,” assures Economic Planning Secretary Karl Kendrick Chua. He cites second quarter 2021 growth of 11.8 percent in making the assurance.
Chua maintains economic growth of 4 to 5 percent this year, rising to 7 percent to 9 percent in 2022 and onwards.
Those hugely optimistic rates require three things:1) a more aggressive vaccine rollout; 2) a safe economic reopening by removing lockdowns; and 3) pouring more money into education, health, and human capital development.
IMF’s Asia chief, Thomas Helbing, cites a third wave of coronavirus disease 2019 (COVID-19) starting from August, increased uncertainty, and weaker-than-anticipated recovery, for the Fund’s less optimistic economic update for 2021.
Helbling says “the economic recovery in the second half of 2021 is expected to be slower than previously expected, due to a third wave of coronavirus disease 2019 (COVID-19) starting from August and increased uncertainty.”
Helbling blames weaker than anticipated recovery for IMF’s more pessimistic outlook on the Philippines.
Second-quarter 2021 GDP grew by 11.8 percent year on year, bringing average growth to 3.7 percent in the first half.
“Real GDP growth in the second quarter of 2021 was weaker than expected by IMF staff. Instead of increasing by 0.5 percent (quarter on quarter, on a seasonally adjusted basis), it declined by 1.3 percent. This outcome seems to reflect a stronger negative impact of the second COVID-19 wave,” says Helbling.
The Philippines’ economic growth in 2021 and 2022 will be supported by sustained growth in public infrastructure spending, improving consumer confidence, and progress in the national coronavirus disease (COVID-19) vaccination program, according to the Asian Development Bank (ADB).
ADB maintains it’s a GDP growth at 4.5 percent in 2021 and 5.5 percent in 2022.
IMF is more pessimistic about the Philippines’ economic outlook.
The Manila-based ADB sees signs of a gradual recovery in the country’s economy, with the upturn in domestic demand and favorable external trends.
The main risk to the outlook is the spread of newer, contagious COVID-19 variants, which may result in the return of stricter containment measures and the stalling of economic activity, ADB says.
“The economy has regained its footing and is on the right growth path. But the recovery remains fragile due to the threat posed by more infectious COVID-19 variants,” says ADB Philippines Country Director Kelly Bird. “Vaccination remains key to the economy’s safe reopening.”
Public infrastructure disbursements rose 39.1 percent year-on-year in July, and the government is on track to achieve its target of raising infrastructure spending to at least 5 percent of GDP in 2021 and 2022, up from 4.8 percent in 2020.
The economic recovery will be boosted by the government’s policy reforms and expansionary fiscal program, with a fiscal deficit of 7.5 percent of GDP expected in 2022, the ADB says.
The National Employment Recovery Strategy adopted by the government in June 2021 focuses on recovery in quality jobs, up-skilling workers, expanding social protection and active labor market programs. Among the government’s priority policy reforms are proposed legislation to improve the investment climate.
ADB’s inflation forecasts are unchanged at 4.1 percent in 2021 and 3.5 percent next year, according to the Asian Development Outlook Update.
Economic Planning Secretary Chua estimates the economic losses of the past two years of P41 trillion. To recover that amount, he reckons, it would take 10 years.
President Duterte has imposed the world’s longest and severest lockdown, starting from March 15, 2020 to this writing, in a vain attempt to contain the COVID pandemic.
Second-quarter 2021 GDP grew by 11.8 percent year-on- year, bringing average growth to 3.7 percent in the first half.
The breakdown of the P41 trillion: P4.3 trillion 2020; and P37 trillion in the next 10 to 40 years.
Chua says that consumption and investments are likely to be lower in the next 10 years due to the reduced demand in sectors that require social distancing, such as tourism, restaurants, and public transportation. Consequently, tax revenues will be lower if businesses cannot operate at 100 percent.
The estimated total loss due to lower consumption is P4.5 trillion. Meanwhile, the loss in private investment and returns in the same period is around P21.3 trillion.
“We expect the economy to converge to the pre-pandemic growth path by the tenth year. While we will recover to the pre-pandemic level by the end of 2022 or early 2023, it will take several more years before we converge to our original growth path,” Chua says.