The Washington-based Institute of International Finance (IIF) has slashed its 2021 growth forecast for the Philippines to 3 percent as it expects the country to be a laggard in returning to prepandemic output levels.
An Oct. 7 report showed the IIF’s revised gross domestic product (GDP) growth projection for this year below the Philippine government’s downgraded 4 to 5 percent target range.
Back in June, the IIF forecasted a 5.5-percent GDP growth for the Philippines this year on expectations that the second half would pick up alongside a faster mass vaccination program. But the more infectious Delta strain of COVID-19 forced a return to the most stringent lockdowns in August while inoculation of the adult population crawled.
Compared to other Asia-Pacific economies, the Philippines’ growth in 2021 would fall behind India’s 9.1 percent, China’s 8.3 percent, South Korea’s 4.2 percent, Malaysia’s 4 percent and Indonesia’s 3.8 percent, but would be better than Thailand’s projected 0.9 percent.
For next year, the IIF estimated 6.3-percent GDP growth, short of the government’s 7 to 9 percent goal.
The Philippines’ economic growth in 2022 would likely surpass those forecast by the IIF for the other Asian countries in the report except India, which was seen growing by a faster 9.8 percent.
Synchronized recovery
The IIF said that “the world economy is unlikely to experience a synchronized recovery from the COVID-19 shock” and emerging markets like the Philippines “will be vulnerable due to the early withdrawal of monetary and fiscal support.”
It added that the revert to economic growth in many countries would be “driven more by statistical effects than genuine activity expansion.”
In the IIF’s 3-percent 2021 growth projection for the Philippines, over 2 percentage points would be “carryover” growth mainly due to low-base effects and the remaining small portion would be the only “genuine” economic expansion reflecting recovery from the pandemic-induced slump.
The IIF’s estimates showed that the Philippines’ real GDP in 2021 would remain more than 6-percent smaller than its prepandemic level in 2019, a bigger gap compared to Thailand’s and Malaysia’s while Indonesia already posted a larger output despite the prolonged pandemic.
Fiscal consolidation
The IIF said that despite incomplete economic recovery, many emerging markets might have to start fiscal consolidation next year to narrow budget deficits and slow down on debt, which ballooned due to the increased spending to address the health and socioeconomic crises inflicted by COVID-19.
“In a few emerging markets, we do still see expansionary fiscal policy, notably in Asia and with support from central banks (such as Indonesia and the Philippines),” the IIF said.
As for inflation, the IIF sees faster global price hikes as “transitory.”
In a report last week, the IIF said that it expects the Bangko Sentral ng Pilipinas (BSP) to “look through above-target inflation.”
The IIF noted that the BSP believed the currently elevated inflation reflected “temporary pickup in price pressures—especially given the pressure on growth from the Delta variant —and sees a possibility for further easing of liquidity.”