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Growth forecasts kept but Delta variant threatens recovery

/ 05:22 AM July 22, 2021

While Metro Manila and neighboring areas moved closer to achieving herd immunity, boosting hopes that the country could finally return to growth path, the more contagious Delta variant of COVID-19 may further slow down the reopening of the economy, think tanks said.

In a report, Pantheon Macroeconomics senior Asia economist Miguel Chanco said the economic impact of the Delta strain would likely be felt by the fourth quarter of this year.

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“The economy’s prospects in the current quarter are likely to be spared, not least because the government has demonstrated consistently an unwillingness to impose the stringent social-distancing measures needed until the very last minute … It probably will take longer for Delta to take hold in the Philippines, due to the still-subdued levels of mobility,” Chanco said.

Chanco, nonetheless, said that with or without the heightened risk coming from the Delta variant, domestic demand would be “extremely challenging” as uncertainty due to the prolonged pandemic tempered consumer spending.

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Citing results of the Bangko Sentral ng Pilipinas’ latest consumer expectations survey (CES), he said sentiment, while improving, remained below prepandemic levels and “still isn’t rising fast enough for households to open their wallets.”

“The proportion of consumers who intend to buy big-ticket items … continued to decline in the second quarter, hitting a new low,” he noted.

“The rebuilding of savings following last year’s drawdown continues to hold back discretionary spending.”

The second-quarter CES showed that the share of households with savings rose to 28.3 percent from 24.7 percent in the third quarter of last year.

“This is still 10 percentage points off the previrus level, as many are still not in any position to set aside savings,” he added.

In the meantime, the Asian Development Bank’s (ADB) Asian Development Outlook Supplement report kept the Manila-based multilateral lender’s 2021 gross domestic product (GDP) growth forecast for the Philippines at 4.5 percent, below the government’s 6-7 percent target range.

“Sustained government spending on infrastructure and social assistance programs is supporting recovery, as did a gradual pickup in household spending aided by strong remittances. Private investment remained sluggish, but indicators such as PMI (purchasing managers’ index), industrial production and imports improved gradually,” the ADB noted.

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It said the government’s vaccination effort had accelerated to more than 250,000 jabs daily, improving the prospects that community protection in Metro Manila could be achieved by year-end.

London-based Capital Economics, however, remained less bullish on its outlook for the Philippines even as it projected GDP growth this year at 6 percent.

“Failure to contain the virus and lackluster fiscal support means the Philippines will experience the slowest recovery in the region. After barely growing [quarter-on-quarter] in the first quarter, GDP is likely to have shrunk in the second quarter as a renewed outbreak of COVID-19 and strict containment measures weighed on activity,” Capital Economics said in its third-quarter emerging Asia economic outlook report.

“New cases have come down recently and restrictions have been gradually eased, but the slow vaccine rollout means there is a risk lockdowns will need to be reimposed in the future.” Capital Economics said.

“The economy is likely to experience significant long-term scarring from the pandemic. Fiscal support has been lackluster and looks to remain so, as worries mount over the high and rising level of government debt. Business insolvencies, weaker household balance sheets and high unemployment, will drag heavily on demand even after the virus has been contained,” it added.

“Overall, we expect GDP to still be around 9-percent smaller than its precrisis trend by the end of 2023—by far the largest gap in the region,” according to Capital Economics.

Last Monday, the government economic team kept the GDP growth targets of 6-7 percent for 2021, 7-9 percent for 2022, and 6-7 percent in 2023 and 2024 “amid the declining number of COVID-19 cases in the country since the peak in April, and the gradual reopening of the economy.”

To recall, the Cabinet-level Development Budget Coordination Committee last May downscaled its near-term GDP growth projections after the pandemic-induced recession spilled over to the first quarter of 2021 with a 4.2-percent year-on-year decline in economic output.

—Ben O. de Vera
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