Return to prepandemic economic growth seen in late 2022

With three years of economic gains wiped out by the coronavirus pandemic and the usual economic growth engines still underperforming, it may take the Philippines until the fourth quarter of 2022 to return to prepandemic productivity level.

This is the projection of ING Philippines economist Nicholas Mapa, who sees the country growing its gross domestic product (GDP) by as much as 5.1 percent this year, coming from very low levels last year. This marked an upgrade from ING’s previous forecast of 4.7 percent, taking into account further relaxation of restrictions, such as the reopening of cinemas and places of worship.

Heading into 2022, however, Mapa expects the higher base this year to knock down GDP growth to 4.3 percent, notwithstanding the potential impact of presidential election spending.

If the construction sector faces challenges in the same way seen last year, given social distancing and minimum health safety standards, Mapa said the impact on growth would also be muted.

“You’ll be surprised that it’s not consumer spending that sees the biggest increase but public construction in the quarters preceding presidential and midterm elections. Maybe, it’s the incumbents trying to finish up project prior to reelection bid or finish their budget prior to exit,” he said at a press briefing on Monday.

Prior to the pandemic, the Philippines’ trend growth rate was about 6.2 percent, equivalent to about P4.9 trillion of output a quarter. With the tough lockdown protocols imposed by the government to curb the pandemic, quarterly output fell to around P3.9 trillion last year, equivalent to 2016 levels.

As such, Mapa noted that headline growth would look excellent this year because of the low base. But the bigger question is how soon is the country returning to pre-COVID-19 levels, which Mapa said should be the true measure of recovery.

This year, ING still expects the country to contract by 3.4 percent year-on-year in the first quarter, followed by a growth spike to 13 percent in the second quarter because of the very low base last year. Growth is seen to pick up to 5.9 percent in the third quarter, before easing to 5 percent in the fourth quarter.

Both consumption and capital formation are seen to remain sluggish this year while fiscal authorities have ruled out calls for a more aggressive fiscal stimulus program.

The massive job cuts seen last year, including the jobs lost by overseas Filipino workers, have impacted on consumers’ purchasing power and are thus unlikely to result in any dramatic revenge spending.

Investment spending is likewise seen to be sluggish as indicated by timid bank lending activities.

“Even if BSP (Bangko Sentral ng Pilipinas) has cut aggressively, borrowing cost hasn’t followed suit and it’s tied to banks being a little more circumspect in giving out loans because there are a lot of risk out there,” Mapa said.

On fiscal spending, Mapa noted that the national budget increase was only 9.5 percent this year. “Yes it’s the biggest budget in history but maybe not commensurate to the drop in GDP,” he said.

Meanwhile, Mapa expects cost-push inflation to remain in the coming months, but given the lackluster growth, he expects the BSP to keep key monetary settings unchanged moving forward.

On a global macro backdrop, ING Asia Pacific head of research Rob Carnell said this year won’t likely see a synchronous global recovery.

“To some extent, growth in 2021 in Asia is an inverse function of growth in 2020. So for example, the Philippines contracted the most of any economy in Asia in 2020, more than 9.5 percent. It will show the second-highest growth rate in the region in 2021 according to the consensus view, but that is mainly a mark of how bad the economy was in 2020, not how good it will be in 2021,” Carnell said. INQ