Aggressive fiscal stimulus needed for quick recovery

A more aggressive fiscal stimulus program is needed for the Philippines to recover quickly from the economic recession caused by the COVID-19 pandemic this year, a top economist said.

In an online forum on global prospects for 2021, Bank of the Philippine Islands (BPI) lead economist Emilio Neri Jr. said that instead of a V-shaped recovery, the country was facing a prolonged recession and a W-shaped rebound wherein the economy would begin to recover rapidly, fall into a double-dip recession, but end with another sharp rise.

In the third quarter of 2020, the Philippine economy contracted by 11.5 percent year-on-year, with household consumption falling by 9.3 percent and investment dropping 41.1 percent.

“Production is responding positively to easing of quarantine measures. But the country’s recovery may continue to fall behind our Asean (Association of Southeast Asian Nations) neighbors if reopening remains slow and fiscal response remains too conservative,” Neri said.

Global economist Thierry Apoteker said during the forum that the road to global recovery would not be smooth given the likelihood of surges or waves of infection that have prompted some countries to revert to strict lockdown measures.

“Several economies will likely experience an asymmetric V-shaped recovery, which will last for at least two years,” said the chair of France-based TAC Economics, a leading provider of global economic, financial and risk advisory services.

Apoteker said that the pace of recovery would be different for each developed economy.

The global economist remains optimistic nonetheless. “It looks like the worst is behind us since governments are more hesitant to implement strict lockdowns,” he added.

While TAC Economics projects that economic output in countries heavily affected by the pandemic would not return to pre-COVID levels in 2021, Apoteker noted that several economies were already seeing significant changes in consumption patterns. “Unconventional” monetary policies will likely continue into the next year given the gradual pace of recovery, he added.

“As a result, liquidity will remain substantial in 2021. Low returns in the bond market might force investors to seek returns in high-risk assets like equities. The abundance of liquidity is expected to cause volatility in the stock market,” he said.

Locally, Neri said the Philippine peso and interest rates would likely show manageable, gradual increases. “Inflation risk is low but supply disruptions need to be watched closely,” he added. INQ