Big bounce back for PH economy seen in 2021

Despite a deep recession poised to be the steepest in the Association of Southeast Asian Nations (Asean) this year, the Philippine economy would bounce back next year, thanks to its growth potential and COVID-19 vaccines expected to control the outbreak sooner than later, according to global investment banking giant Goldman Sachs.

In 2021, “we expect growth to rebound the most in the Philippines (9.4 percent) and Malaysia (6.6 percent), which were among the hardest hit by virus containment this year,” Goldman Sachs economists Andrew Tilton, Danny Suwanapruti and Jonathan Sequeira said in their Nov. 19 report titled “Asean 2021 Outlook: Vaccine Critical to Regional Recovery.”

But for 2020, Goldman Sachs expects the Philippines’ gross domestic product (GDP) to post the biggest contraction of 8.5 percent in Asean-5, followed by Malaysia’s 6.5 percent, Thailand’s 6.3 percent, Singapore’s 5.8 percent and Indonesia’s 1.8 percent, or an average of 4.5-percent drop across these five countries.

Goldman Sachs attributed its 2020 GDP forecast for the Philippines to the country having “among the most stringent lockdowns in the region this year and limited success with domestic virus containment.”

“Given the extended demand contraction and limited fiscal offset to private sector balance sheets, we also build in larger permanent output losses going forward. However, with virus spread now slowing domestically, some relaxation in containment policies is likely—and this combined with the deployment of an effective vaccine next year could see a meaningful normalization in service sector activity in the second half of 2021” in the Philippines, Goldman Sachs said.

“The government also plans to normalize capex spending under its flagship ‘Build, Build, Build’ infrastructure spending program in 2021. Program expenditures are expected to contract 6 percent this year as the government prioritized social and health-care spending. However, we expect capex spending to rise to 5.6 percent of GDP in 2021 (after declining to 4.4 percent of GDP this year from 5.2 percent in 2019)—with the government budgeting a 40-percent increase in capex spending in 2021. Compared to previous years, when the government relied entirely on its budget to finance infrastructure spending, there will also be higher private participation—with around 30 percent of ‘Build, Build, Build’ projects now expected to be financed by the private sector,” Goldman Sachs added.

Across Asean-5, “places with more success in curbing virus spread were able to ease containment policy more (Singapore, and until recently, Malaysia) and saw stronger rebounds than places with less success in curbing the virus and tighter containment policies (the Philippines and Indonesia),” Goldman Sachs noted. —Ben O. de Vera INQ