IIF: PH a laggard in ‘uneven’ Asean-5

In what it described as an “uneven” recovery among emerging economies belonging to the Association of Southeast Asian Nations (Asean)-5, the Washington-based Institute of International Finance (IIF) saw the Philippines among the laggards in the region due to its inability to contain COVID-19, slow mass vaccination and prevailing high consumer prices.

“The Asean-5 (Indonesia, Malaysia, the Philippines, Thailand and Vietnam) have enjoyed stronger growth than most emerging markets over the past decade but experienced a 3.9-percent output contraction in 2020—with only Vietnam maintaining real GDP (gross domestic product) growth. For 2021, we forecast a rebound of 5.2 percent—supported by the ongoing vaccine rollout, robust exports, and strong policy support—before growth rises to 5.4 percent in 2022,” IIF associate economist Yuanliu Hu, deputy chief economist Elina Ribakova and economist Benjamin Hilgenstock said in a May 5 report titled “Asean: Uneven Recovery from COVID-19 Shock.”

But the IIF said that while Indonesia, Malaysia and Vietnam would already revert to their prepandemic GDP levels within this year, “recovery will be somewhat slower in the Philippines and Thailand and extend into 2022.”

In an email on Thursday, Hu said he kept the 7-percent GDP growth forecast in their latest report, even as “I do think I need to downgrade to 6.5 percent or even lower, given the new round of 1.5 months of lockdown,” referring to the more stringent quarantine measures reimposed in National Capital Region (NCR) Plus before March ended up to present.

NCR Plus accounted for about half of the Philippines’ GDP.

Pandemic control

The government targets GDP growth of 6.5 to 7.5 in 2021.Hu said the Philippines would be a laggard in returning to its prepandemic GDP level as pandemic control remained a problem, aggravated by the lack of vaccine supply. The ongoing stricter quarantine which spilled over to the second quarter and the elevated inflation did not help. He said high headline inflation—which averaged 4.5 percent as of end-April, above the government’s 2-4 percent target range—“will dampen the recovery.”

“First of all, high inflation will affect monetary policy—there will be no policy room for easing, and the central bank may have to think about normalizing or even tightening in the near future. Secondly, the prolonged high inflation will also dampen domestic consumption, which contributed a large part of growth,” Hu said.

In its report, the IIF noted that the Philippines and Indonesia had yet to tame their COVID-19 infections even as most countries in the region wanted to achieve herd immunity by year-end.

“Based on the current pace of vaccinations, this appears to be a very optimistic scenario,” the IIF said.

“After the trough in the second quarter of 2020, economic activity gradually recovered. It is worth noting, however, that both the impact of the pandemic as well as the subsequent recovery vary considerably from country to country—depending on the structure of the economy, the strictness of public health-related restrictions, and the policy response. Malaysia and the Philippines experienced the largest GDP declines among the Asean-5, but activity has recovered much faster in the former,” it noted. —Ben O. de Vera