Economy seen facing bumpier ride to recovery

The Philippines’ economic recovery will remain at risk if it cannot speed up mass vaccination and contain COVID-19 spread while fiscal support to vulnerable sectors badly hit by the pandemic-induced recession stays meager, two economic think tanks said on Friday.

“There is still a chance that the Asia-Pacific region can pick itself up from its current wrestling match with COVID-19 and the Delta variant. The coming six months will be filled with uncertainty and volatility as parallel efforts will be required across the region to accelerate the pace of vaccination as well as improve testing and tracing of the coronavirus given the high transmissibility of the Delta variant,” Moody’s Analytics chief Asia-Pacific economist Steven Cochrane and senior economist Katrina Ell said.

“China, Japan, Taiwan, South Korea and Singapore will not be able to ease up in their efforts, and others such as India, Indonesia, the Philippines and Thailand will have to ramp up theirs on both fronts,” Moody’s Analytics said.

Moody’s Analytics said those with such programs in place would face a relatively smooth path toward broad economic recovery.

“Those that don’t have effective policies in place will face a much bumpier ride,” it warned.

In the case of the Philippines, Moody’s Analytics noted that while it had imposed economically devastating lockdowns, especially in Luzon which accounted for the bulk of its gross domestic product (GDP), these stringent movement restrictions had “little impact” on slowing down COVID-19 infections.

Region’s laggard

As for mass vaccination, it said the Philippines, Indonesia, Thailand and Vietnam remained the slowest in the region.

“Currently, the Philippines is the laggard of the region with daily new COVID-19 cases still near a record-high, continued quarantines in the greater Manila region, and only modest fiscal spending to support domestic spending and well-being.”

At the end of the first quarter, the Philippine GDP was only about 90 percent of its peak in end-2019, hence projected to be the last to revert to prepandemic levels in the region.

Weak link to supply chains

While most neighboring economies’ exports are now benefiting from global economic recovery, sales of Philippine-made goods abroad have yet to return to prepandemic volumes as “the Philippines is one of the region’s countries that is least tied to global supply chains,” Moody’s Analytics said.

“The Philippines, which has struggled to engage with the export economy, still has a positive current account because imports are so low. Two factors currently limit its imports: the extensive lockdowns limit consumer spending, and brought to a temporary halt some large infrastructure projects that require extensive imported components. Both factors will reverse once the economy is allowed to function more normally,” Moody’s Analytics added.

As such, Moody’s Analytics said the Philippines currency looked quite strong, but as its flow of imports would return to a more normal trend, its current account could likely ease, and so would the peso.

Moody’s Analytics also warned that as the United States and Europe started their transition to policy normalization, “India, Indonesia, the Philippines and Thailand could face capital outflows and weaker foreign exchange rates if accommodative policies must remain in place as investors begin to chase higher yields in developed economies that are on the mend.”

In a separate report, Deutsche Bank Research said “the Philippines remains vulnerable to COVID-19 as supply problems have constrained vaccination.”

“Downside risks to growth continue to dominate, but may not be large, even as the country’s vulnerability to the pandemic remains high,” Deutsche Bank chief economist Michael Spencer said. INQ