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PH faces longer, shallower recovery

Shape of economic trajectory will not be a ‘V’ nor a ‘U’, but a ‘dirty L’

MANILA, Philippines — The Philippines’ return to prepandemic economic growth levels will take longer than expected, with next year’s expansion likely to remain constrained by downside risks, including challenges to the distribution of the coronavirus vaccine.

Thus concluded economists and investment managers who spoke in an online forum hosted by the Inquirer, opining that the recovery of the country’s gross domestic product (GDP) would come in the form of a “dirty L”  — resembling a shallow-trajectory check mark—rather than the V- or U-shaped recovery that government planners were earlier predicting.

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“Early hopes of a quick rebound in 2021 have since been dashed by business losses and shutdowns, high unemployment and continuing spread of the coronavirus that has made it impossible to completely relax quarantine and distancing rules,” according to economist and former finance undersecretary Romeo Bernardo in a Global Source Partners paper he co-authored with Marie Christine Tang.

“While government is striving to ‘flatten the fear’ and turn gloomy consumer and business sentiments around to revive the economy, we think it will be a slow ascent for the economy with GDP anticipated to grow only 5 percent in 2021, returning to its 2019 level only by late 2022,” he said.

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Global Source Partners expects the Philippine economy to contract by 9.8 percent this year, saying the resulting economic recession from the lockdown imposed by the government to combat the pandemic “is proving much more fearsome beyond a continuing health problem.”

Bernardo said expectations of growth over the near term came with “considerable downside risks” due to challenges in procuring vaccine from foreign manufacturers, while current distribution limitations likely meant that the country would have to live with COVID-19 “far longer than we had previously anticipated.”

‘Crash landing’

Meanwhile, ING Bank Manila country manager Hans Sicat described the recent behavior of the Philippine economy—with output shrinking by a record 16.5 percent in the second quarter, and improving slightly to an 11.4-percent contraction in the third quarter— as a “crash landing.”

He added that the trajectory of the recovery would be shallower than earlier predicted and average 3.7 percent over the near term, instead of the 5.6-percent growth rate that would normally characterize a sharper V-shaped recovery that policy makers were hoping for.

“It’s not a V, it’s not a U,” Sicat said, describing the shape of the recovery. “We’re actually using a different letter. It’s what we call a ‘dirty L’. Not exactly a ‘swoosh’.”

BDO Capital and Investment Corp. president Eduardo Francisco sounded a more optimistic tone, saying publicly listed corporations would likely see a 52-percent average rebound in earnings in 2021, coming off an average net income decline of 41 percent this year.

“We’re a little more optimistic on GDP [growth],” he said. “We’re expecting growth of 6.9 percent and I’m hopeful that will be the case.”

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Other banking experts also noted that even with coronavirus vaccines now in the horizon, it may take the Philippines by mid-2022, at the earliest, to return to the same level of economic productivity seen before the current pandemic dragged down what was once Southeast Asia’s outperformer.

Pump-priming needs

Security Bank is projecting GDP to grow by 7.1 percent in 2021 and 5.3 percent in 2022.

But even with the pace of growth seen next year, Security Bank executive vice president and treasurer Raul Martin Pedro said nominal GDP would just be at P18.69 trillion versus the P19.37-trillion size of the economy in 2019.

“We won’t get there until the middle or second half of 2022,” Pedro said during an economic forum recently conducted by Security Bank for its clients.

In a separate briefing, Philippine National Bank economist Alvin Joseph Arago said the third quarter GDP results showed a slower-than-expected recovery, suggesting that it might take until the third quarter of 2022, at the earliest, to achieve the P4.8-trillion quarterly GDP output. As such, he expected the Bangko Sentral ng Pilipinas (BSP) to keep interest rates low until the first half of 2022.

PNB sees a full-year GDP decline of 8.9 percent this year, followed by a 5 percent growth in 2021 and 6 percent in 2022.

Pedro said the BSP’s policy rates would likely be kept stable for the next couple of quarters, allowing the economy to recover. Citing the latest mobility data from Google and Apple, he noted that mobility in the domestic economy by way of mobile phone movement was still about 40 percent below prepandemic levels.

“There’s still a lot of catching up to do,” he said.

As far as the local financial system is concerned, Pedro said banks were sitting on a lot of excess cash that could easily fund the pump-priming needs of the national government in the coming year. INQ

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