There are indications that the worst may be over for the Philippine economy, which suffered its worst contraction in recorded history in the second quarter of this year, lending credence to predictions that growth would rebound sharply next year, according to the head of the central bank.
At an online conference on Tuesday (Aug. 25), Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said foreign investors should also look at the Philippines as a safe haven for their investments when the latest numbers are taken together with its strong fundamentals.
“Our projections [for a strong 2021 performance] are supported in part by initial signs of recovery,” he said in remarks delivered during the online investors’ conference on the country’s prospects hosted by Japanese investment bank Nomura.
He cited the path to recovery of manufacturing, saying volume of production index improved to negative 19 percent last June from negative 39 percent last April. Exports, he said, improved to negative 13 percent in June from negative 50 percent in April.
Exports to China — the Philippines’ top trading partner — was up 2.8 percent in June, a reversal from a 55-percent contraction in April. It came amid expectations that China’s economic recovery in the second semester of 2020 will also buoy the Philippines’ growth.
“With the indicators of recovery, I am confident the Philippines will soon go back to its path toward becoming a more inclusive upper middle-income economy over the medium term,” Diokno said.
The central bank chief said that, like many economies across the globe, the Philippines contracted in the first semester.
Nevertheless, he stressed that the country’s latest contraction was unlike previous crises — like the 1983 debt moratorium declaration and the 1997 East Asian financial crisis — when the peso depreciated, interest rates rose, the debt-to-economic output ratio expanded, dollar reserves thinned and the banking industry “wobbled”.
“In previous crises, there were inherent weaknesses in the economy,” he said. “But today, the Philippine economy contracted only because of our self-imposed, strict nationwide lockdown to save lives and to allow the buildup of health facilities and testing capacities amid the pandemic.”
The Philippine economy currently is robust, characterized by strong fundamentals like low interest rates, appreciating peso, sound external sector with a record-high GIR, low debt ratios, tame inflation and robust banking industry.
Based on latest government projections, Diokno said he expects gross domestic product to rebound from a 4.5-6.6 percent contraction this year to a “solid” growth of 6.5-7.5 percent next year and in 2022.
Agriculture, public infrastructure projects, and revival of industry and services sectors are expected to lead this recovery.
“We expect Inflation to remain benign, thus providing an enabling environment for jumpstarting economic activities,” he added. “We expect inflation to settle within the range of 1.75-2.75 percent this year, and 2-4 percent next year and in 2022.”
He also said he expects trade to recover with exports expected to grow by 5 percent and imports by 8 percent next year and in 2022, following this year’s contractions.
Remittances, too, are expected to contract by 5 percent this year, but will likely rise by 4 percent next year.
“As market participants, all of you are probably looking for new safe havens as the world continues to grapple with the COVID-19 crisis,” he added. “With all the points I have just narrated, there is basis to consider the Philippines among them.”