The Philippines, once Asia’s outperformer, will likely lag behind its peers in the region’s economic recovery in the coming year due to its vulnerability to the coronavirus (COVID-19) pandemic and muted fiscal support from the government.
This is according to Japanese investment house Nomura, which sees the Bangko Sentral ng Pilipinas (BSP) slashing key interest rates by another 50 basis points next year.
In its Dec. 11 global economic outlook, Nomura said Asia would be in a sweet spot in 2021, and likely to post an average gross domestic product (GDP) growth of 8.1 percent next year, a sharp reversal from this year’s 1.1-percent contraction. But it noted that Thailand and the Philippines would likely be the laggards, reaching their prepandemic output level only in the second quarter of 2022.
Coming from a 9.8-percent contraction this year—the worst recession seen in history and the first recession since the Asian currency turmoil— Nomura expects Philippine GDP to grow by 6.8 percent next year and by 7.9 percent in 2022. This pace of growth, coming from a low base, is seen not enough to reclaim the country’s economic output of about P19 trillion seen before the COVID-19 epidemic in China turned into a global public health crisis that paralyzed the world economy.
“The growth recovery is likely to disappoint due to its vulnerability to virus outbreaks as vaccine procurement plans are delayed and due to limited fiscal support. This should lead to 50 basis points more in rate cuts from the BSP by the first quarter [of 2021],” the research said.
The country’s economic losses from the pandemic and a string of typhoons this year are estimated to reach P3.4 trillion, requiring a more aggressive fiscal response from the government in 2021, economist and lawmaker Stella Quimbo earlier said. Pushing for a third package of COVID-19 intervention measures or Bayanihan 3, Quimbo estimated that pandemic-related spending budgeted by the national government for the coming year would only be P413 billion which, she said, was “way too small” compared to the economic damage suffered by the country this year.
Nomura sees the BSP turning hawkish by 2022, projecting a 50-basis-point rate hike which will bring the overnight borrowing rate from the forecast record low of 1.5 percent next year to 2 percent.
Nomura expects Thailand to grow at an even slower pace of 3.2 percent next year and 5.3 percent in 2022, coming from a likely full-year contraction of 6.9 percent this year.
Overall, Nomura said the prolonged pandemic had resulted in a unique global recession in 2020, with the contact-intensive services sectors being hit disproportionately hard, causing a very uneven distribution of losses.
Across Asia, the path to recovery may still be bumpy until the vaccines come, but there’s no likely derailment of the cycle, the research said. INQ