Omicron spike dampens PH’s economic recovery momentum, think tanks say
MANILA, Philippines — The spike in COVID-19 cases at the start of this year dampened expectations for Philippine economic recovery in 2022 after momentum picked up in late 2021, think tanks said.
The Philippine Statistics Authority (PSA) on Wednesday revised downward the third-quarter gross domestic product (GDP) growth figure to 6.9 percent year-on-year. In November 2021, the PSA reported a higher 7.1-percent third-quarter growth rate.
The PSA said its updated third-quarter figure reflected slower-than-earlier-announced growth in financial and insurance activities, professional and business services, as well as real estate and ownership of dwellings.
The International Monetary Fund (IMF) nonetheless jacked up its 2021 growth forecast to 4.6 percent from 3.2 percent previously to “reflect the better-than-expected outturn during the third quarter, following the successful implementation of more granular lockdowns and targeted mobility restrictions during the third wave of COVID‑19,” the multilateral lender’s new resident representative in the Philippines Ragnar Gudmundsson said in an email.
The IMF’s forecast remained below the government’s 5-5.5 percent growth goal for 2021. The fourth-quarter and full-year 2021 GDP report will be out on Thursday, January 27.
“Despite the negative impact of Typhoon ‘Odette,’ the strong growth momentum was sustained during the last quarter of 2021, underpinned by a continued reduction in the infection rate, lesser mobility restrictions and a higher vaccination rate,” Gudmundsson said.
But the IMF kept its 2022 growth forecast of 6.3 percent “because the carryover from the upward growth revision in 2021 is expected to be canceled out by the rapid spread of the Omicron variant and new quarantine measures in the first quarter of 2022,” he said. The government targets a faster 7-9 percent GDP growth this year.
“Strong growth is nevertheless expected during the remainder of 2022, as vaccination proceeds further, policy measures remain appropriately supportive, and private sector confidence improves. Challenges could stem from uncertainty about Omicron containment or a sharp tightening of global financial conditions, underscoring the importance of continued flexibility to respond to evolving priorities in a volatile external environment,” Gudmundsson said.
The IMF was hopeful that the economic reform momentum in recent years “will be maintained, including during the upcoming election period, as it has been through the pandemic,” he said.
“It will be important to accommodate expenditure for social services to fund health-related programs and provide cash subsidies for the hardest-hit sectors, and to ensure that vital infrastructure investments under the ‘Build, Build, Build’ program contribute to the economic recovery and create job opportunities,” Gudmundsson added.
Debt watcher Moody’s Investors Service said in an Asia-Pacific report on Wednesday that it “expects income inequality and unemployment to play an important role in the 2022 presidential elections in South Korea and the Philippines.”
The prolonged pandemic shed millions of jobs and shuttered thousands of businesses, such that employment gains amid economic reopening remained below pre-pandemic levels. It did not help that the most vulnerable sectors like the poor, women, and youth had more difficulty finding stable jobs and settled for informal work due to skills mismatch.
Moody’s said COVID-19 mutations pose risk to tourism-dependent countries like the Philippines; it also did not help that the region’s manufacturing sector was vulnerable to the evolving disease.
“COVID-19-related disruption in the Asean-5 countries (Indonesia, Malaysia, the Philippines, Thailand, and Vietnam) may put further pressure on already stretched global supply chains as new virus outbreaks in the region result in temporary disruptions to labor force mobility and availability,” Moody’s said.
As for Capital Economics, “lackluster fiscal support means that the Philippines will experience the slowest recovery from the pandemic in Asia.”
While the London-based think tank deemed that “the Omicron wave is unlikely to have as large an economic impact as previous virus waves,” the Philippine economy was “likely to suffer significant long-term damage from the pandemic.”
“A sharp rise in virus cases has probably put the brakes on the recovery. While overall vaccination levels are relatively low, the economically-important cities have high coverage. The restrictions that have been brought in so far are much less stringent than those during previous waves. Our assumption is that the government will continue with its light-touch approach to Omicron. Overall, the recovery is more likely to stall than slip into reverse. It should get back on track in the second quarter,” Capital Economics said in a January 25 report.
But for the long-term, Capital Economics said “business insolvencies, weaker household balance sheets, and labor market scarring all mean a large permanent hit to output.”
“Lack of fiscal support will have made these problems worse than elsewhere in the region, where stimulus measures have generally been more generous. We expect GDP to still be almost 12-percent below its pre-crisis trend by end-2023 – by far the biggest gap in the region,” it added.
Following a projected 5.3-percent GDP growth in 2021, Capital Economics expects the Philippine economy to expand by 8.5 percent this year, among the most optimistic forecasts.
A working paper released by the regional surveillance organization Asean+3 Macroeconomic Research Office (Amro) on Wednesday showed that the Philippines and Singapore’s potential vulnerability to risks from an exit from pandemic response policies was relatively lower compared to the rest of the region.
“The service sectors in the Philippines and Singapore serve as a counterweight to the strong concentration in their respective manufacturing sectors. The growth of the service sector in the Philippines comes from the robust business process outsourcing (BPO) and tourism industries, while Singapore’s service sector has expanded significantly, thanks to its early push toward digitalization and automation, which became an important advantage during the pandemic,” read Amro’s paper titled “COVID-19 Pandemic Policies: Assessing the Vulnerability of Asean+3 Economies to Exit Risks.”
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