UK think tank: Omicron tilted 2022 PH growth prospect to downside

MANILA, Philippines—The ongoing surge in COVID-19 cases likely fueled by the Omicron strain has tilted the Philippines’ growth risks to the downside, but a rising vaccination rate could keep domestic demand afloat, UK-based think tank Pantheon Macroeconomics said on Monday (Jan. 10).

In a report, Pantheon Macroeconomics senior Asia economist Miguel Chanco said he kept his 2022 gross domestic product (GDP) growth forecast of 4.5 percent, way-below the government’s 7 to 9 percent target range, even as Omicron was “spreading like wildfire in the Philippines.”

“Overall, a healthy recovery in private consumption will be critical for the Philippines this year, as we expect the upcoming presidential election in May to apply temporary, but material, brakes to government spending and investment,” Chanco said, referring to the forthcoming 45-day public spending ban ahead of the May 9 elections.

At present, “it looks inevitable that the Omicron wave eventually will grow to be much larger than the Delta outbreak,” Chanco said.

Metro Manila and most surrounding provinces accounting for about half of the economy had been placed under stricter alert level 3 restrictions until mid-January, which the government had estimated will cost P3 billion in output losses a week.

But citing manufacturers’ net sales data in November 2021, Chanco said “catch-up momentum appears to be strong enough to ride out new waves of the virus.”

“The uptrend in the volume of net sales remained largely intact through most of last year, despite the twin blows of the Alpha and Delta waves in the second and third quarters, respectively,” he said.

Chanco noted that the Philippine government had imposed “strict — but relatively, if controversially, short — containment measures” when the Alpha and Delta strains hiked COVID-19 cases last year, “and we see no reason for this approach to change with Omicron.”

“Crucially, roughly 30-percent more of the population is now fully vaccinated since the Delta wave peaked. And there still is some room left for domestic demand to play catch-up,” Chanco said, citing nationwide net sales volume as of November last year remaining 4-percent lower than pre-pandemic volumes.

However, Chanco described the Philippines’ long-term economic outlook as still “fragile,” citing steady remittance flows which may not be enough to prop consumer spending, plus the shedding of household savings amid the prolonged pandemic.

He warned that “another setback can’t be ruled out in the current quarter if Omicron forces households to dip back into their savings, in the same way that Delta did in the third quarter” of 2021.

Chanco also pointed to a weak labor market which had “yet to show any real signs of recovering.”

While the Philippines’ jobless rate fell to 6.5 percent in November 2021 — the lowest since the COVID-19 pandemic shed jobs starting April 2020—the low quality of available work amid gradual economic reopening jacked up underemployment, worrying economists that recovery may be fragile.

Underemployment — or the share of workers who wanted more working hours or at least eight hours on duty for possibly bigger pay — climbed to 16.7 percent, a four-month-high, last November.

November’s underemployment rate translated into 7.62 million Filipinos not satisfied with their working hours and salaries, a jump from 7.04 million in October 2021.

National Statistician Dennis Mapa last week noted that many firms, despite being allowed to restart their businesses, still had shaky operations with uncertainty from COVID-19 risks lingering. Also, businesses remained hampered with limited capacity in line with minimum health protocols to contain the spread of COVID-19.

It did not help that the end of each year historically offered mostly contractual jobs temporarily needed by companies amid the Christmas holiday rush, Mapa said.

For ING’s senior Philippine economist Nicholas Antonio Mapa, the poor quality of jobs that resumed toward the end of last year may be a drag to the Philippines’ economic recovery.

“Lower quality jobs translates to lower pay and income, which, in turn, would limit consumption behavior until incomes rise,” ING’s Mapa told the Inquirer last week.

In an economic bulletin on Monday, Finance Undersecretary Gil Beltran, also the Department of Finance’s (DOF) chief economist, said mass vaccination continued to be the key to regaining jobs lost to the COVID-19 pandemic.

“The administration of vaccines will help the country live with the virus. As always, however, the country needs to stay alert and not let its guard down as the virus continues to mutate,” Beltran said.

For the medium to long-term, Beltran said passage of amendments to three laws—the Foreign Investment Act, Public Service Act and Retail Trade Liberalization Act—“will help bring in more capital, generate more employment and make the economy more competitive.”

The signing into law of amendments to the Retail Trade Liberalization Act, Beltran said, “is a welcome development towards better economic recovery and ultimately better employment opportunities.”

Over the weekend, Finance Secretary Carlos Dominguez III thanked President Rodrigo Duterte and Congress for approving amendments pushed by the economic team in the Retail Trade Liberalization Act.

The amendments contained in Republic Act (RA) No. 11595 belonged to the three “investment-friendly” measures which the President and his economic managers wanted in order to further liberalize the economy and attract more foreign investors, without touching restrictions enshrined in the 1987 Constitution.

“As we continue our path to recovery, the economic liberalization bills either passed or being considered by our lawmakers will be crucial to bringing in much-needed foreign investments that would supercharge the economy and create a lot more jobs for Filipinos, more so at this time when the country is recovering from the pandemic-induced global health and financial crises,” Dominguez said.

Still pending Duterte’s approval was the amendment to the Foreign Investment Act. The proposed amendment to the Public Service Act has yet to undergo bicameral proceedings by the two chambers of Congress.

RA 11595 slashed foreign retailers’ minimum paid-up capitalization to P25 million from P125 million previously, while doing away with other previous qualification requirements in terms of net worth, number of branches, and retailing track record.

“By lowering the minimum paid-up capital and simplifying the qualification requirements for foreign retailers, the amendments will significantly aid in incentivizing foreign retailers to come in and create jobs,” Dominguez said.

“This will also enhance competition among enterprises, which will be beneficial to our consumers by providing more choices at lower and more competitive prices,” he said.

“These are welcome changes from the previous rule that disproportionately favored already-large enterprises, prevented diverse smaller investors such as startups from entering the Philippine retail market, and complicated compliance for foreign retailers,” Dominguez added.

Since the retail trade law amendment also enjoined inventory-stocking of Philippine-made goods, “this will help protect our country’s small local manufacturers and encourage retailers to provide opportunities for locally-made products, despite being foreign-owned,” Dominguez said. “We hope this will also aid in generating much-needed employment and income for Filipinos.”

TSB