Rocky growth for PH seen as pandemic lingers

After withstanding a third quarter Delta variant surge and ending this year on a high note, the Philippines is facing a “challenging” year ahead, with uneven economic growth seen to prevail given the “ills that followed COVID-19 out of Pandora’s box.”

This is according to New York-based think tank Global Source, which projected that the country’s gross domestic product (GDP) would grow by 5.5 percent next year, same pace of expansion seen for this year. Its GDP forecast for next year is much lower than the consensus growth outlook of 6.8 percent.

In a research note dated Dec. 2, written by Filipino economists Romeo Bernardo and Marie Christine Tang, Global Source sees the country’s domestic output returning to prepandemic levels only by late 2022. The country’s prepandemic output amounted to about P4.9 trillion per quarter.

The outlook of Global Source is based on two critical assumptions: existing vaccines work against Omicron, the latest variant of concern, in preventing severe illness; and, national and local elections slated for May 2022 are conducted credibly and the results conclusive.

COVID-19 reality

The challenging outlook in the year ahead prices in the reality that the COVID-19 virus itself has yet to fade away, various government restrictions are still in place, and the vaccination drive—currently covering less than half of the population—still has a long way to go.

It added that the upcoming election jitters were heightened by political polarization following the entry of Ferdinand Marcos Jr., the former dictator’s son, in the presidential race.

“On the economic front, inflation and debt worries are top on mind, with expected tighter financial conditions globally limiting the maneuvering room for monetary and fiscal authorities and generally raising risks for emerging markets,” the research said.

“Too, the US-China trade and technology conflict is lingering, creating additional uncertainties for trade and investments. In this environment, it is the paranoid’s instinct to expect the worst,” it added.

Global Source said it’s still hopeful that the midyear political turnover would give rise to good and effective leadership under which there would be macroeconomic policy continuity and reforms, which would treat scarring from the pandemic and get the economy back to its pre-pandemic growth path.

Better health system

Given almost 100-percent vaccination coverage in Metro Manila, the think tank expects the health system to better cope with surges, assuming no letup in administering booster shots and expanding vaccination coverage to the rest of the country. In this environment, it anticipates sustained growth in business process outsourcing, digital transformation and resilience of remittances to support the economy’s recovery.

“Despite this and the momentum going into 2022, we expect the unevenness in growth across income groups and industries reflecting firm and labor market scarring to continue and weigh on activity further out. There will also be more uncertainty about sources of growth as poll-related spending disappear by midyear and focus shift to questions of policy continuity under the new administration,” the research said.

“Our outlook also factors in less fiscal impulse from government deficit spending and the start of monetary tightening later in the year.”

From a prepandemic deficit of 1.5 percent of GDP, the national government’s primary deficit rose to 5.5 percent last year and is seen on its way to exceed 6 percent this year. The primary deficit is the largest contributor to the increase in government’s debt, which totaled P11.9 trillion or 61 percent of GDP) as of September, up from P7.7 trillion (40 percent of GDP) at the end of 2019.

“More than the pace of deficit reduction, we think creditors will primarily scrutinize any fiscal consolidation program for its credibility. The first test will be the reputation of the next president’s economic team,” Global Source said.