London-based Capital Economics sees a slight improvement in the Philippine economy during the fourth quarter even as it remained a laggard in the region.
“The Philippines’ economy is only likely to have improved a little this quarter. A fall in new virus cases has enabled the lifting of some restrictions to activity. But as timely data show, mobility remains very depressed and well below elsewhere in the region,” Capital Economics senior Asia economist Gareth Leather, Asia economist Alex Holmes and research assistant Oliver Byrne said in a Dec. 22 report titled “New outbreaks pose downside risks to 2021 forecasts.”
Gross domestic product shrank by an average of 10 percent during the first nine months amid a prolonged COVID-19 quarantine.
“The industrial sector remains in the doldrums, with output down by nearly 15 percent year-on-year. Fiscal support is proving inadequate—government spending fell back in October in levels terms and was down 6.8 percent year-on-year,” Capital Economics noted.
As such, Capital Economics said that even as the Bangko Sentral ng Pilipinas (BSP) kept key interest rates steady during its last meeting on the monetary policy stance for 2020 held last week, “the weakness of the recovery means further easing is likely in 2021.”
“We don’t think the recent rise in inflation, from 2.5 percent year-on-year in October to 3.3 percent in November, will stop the [BSP] from easing further. While higher oil price inflation will push up the headline rate early next year, the weakness of the economy will keep underlying price pressures subdued and inflation should stay within the BSP’s 2 to 4 percent target band,” Capital Economics said.
A string of strong typhoons since late October led to a spike in headline inflation last month mainly as food prices surged, although economic officials had said it was only temporary.
Amid stable inflation yet a slow rebound from the pandemic-induced recession, the BSP slashed the policy rate by a total of 200 basis points (bps) this year to a record low of 2 percent.
Capital Economics expects the BSP to approve a 25-bp cut as early as the first quarter of 2021 to end next year with a policy rate of an even lower 1.5 percent.
Early this month, Capital Economics said that the availability of COVID-19 vaccines would be a game changer for countries that grappled to contain infections such that it upgraded its growth forecast for the Philippines for the next two years.
“The recent good news on vaccine development means that countries in emerging Asia are likely to start inoculating their populations sooner than we had previously envisaged,” Leather said in a Dec. 4 report titled “New forecasts on positive vaccine developments: Faster recovery now likely.” INQ