MANILA, Philippines—The regional surveillance group Asean+3 Macroeconomic and Research Office (Amro) has projected the Philippines to post faster economic growth of 7.4 percent this year despite a 2020 recession that was worse than expected.
Amro’s latest 2021 gross domestic product (GDP) forecast released on Friday (Jan. 29) was higher than the 6.6-percent expansion projected in September 2020 but hewed closely with the government’s 6.5 to 7.5 percent growth target.
“Looking ahead, the Philippine economy is expected to continue to recover, as more restrictive policies are lifted, and confidence is restored by mass vaccination and continued policy support,” Amro said in a statement.
For 2022, Amro expects GDP growth further rising to 7.8 percent, although it was below the government’s goal of 8-10 percent.
The Philippines’ record 9.5-percent recession in 2020, however, was beyond Amro’s earlier estimates of only 7.6-percent GDP drop.
“The Philippine economy contracted in 2020 as a result of the disruptive impact of the COVID-19 pandemic,” the statement quoted Siu Fung Yiu, Amro lead economist, as saying.
“As the recovery remains fragile and is at its early stage, the government should maintain sufficient policy support to ensure a robust economic recovery while safeguarding against potential macroeconomic and financial risks,” Siu said.
Siu led an online annual consultation between Amro and Philippine economic offices from Jan. 11 to 26.
“The collapse of domestic demand was broad-based and particularly acute in sectors that need physical contact and close engagement,” Amro noted.
Last Thursday (Jan. 28), acting Socioeconomic Planning Secretary Karl Kendrick T. Chua said prolonged COVID-19 quarantine slashed household consumption by P801 billion in 2020, or about P2.2 billion a day, such that total income losses reached P1.04 trillion or about P2.8 billion daily in 2020.
The millions of jobs shed by the pandemic and its ensuing lockdown also reduced families’ incomes by about P23,000 per worker, according to Chua.
Despite its rosier growth expectation for 2021, Amro cautioned that “the Philippine economy continues to face multiple downside risks and challenges in its recovery path, including a prolonged wave of the pandemic and a slower-than-expected global recovery.”
“Businesses face potential financial distress with implications for lower potential growth due to the scarring effects of a prolonged downturn,” Amro said.
“Dominated by the service-oriented sectors and micro, small and medium enterprises (MSMEs), the economy is vulnerable to the COVID-19 shocks. Effective policy transmission faces several practical challenges that may be improved with greater financial inclusion,” the group added.
“As such, the Philippines is likely to experience some reversal of social-economic gains,” Amro said.
Amro advised the Bangko Sentral ng Pilipinas (BSP) to “collaborate with other government agencies to offer banks greater incentives to increase lending to the business sector, especially MSMEs” so that the central bank’s “swift and effective” monetary and regulatory responses to the pandemic-induced slump can trickle down through easier credit access.
“The development of financial risks should be closely monitored, while the intervention and resolution framework should continue to be strengthened. Likewise, the withdrawal of regulatory forbearance needs to be cautious,” Amro said.
“Although the economy has entered the recovery phase, the deterioration of asset quality is still ongoing. The typical inverted U-shaped trajectory of non-performing loans indicates that the efforts of resolving the problem assets can stretch beyond the current policy cycle,” it said.
“It is important for the BSP to coordinate closely with its stakeholders and other government agencies when deciding on the extension or withdrawal of relief measures to avoid a cliff effect,” Amro added.
For Amro, “considering that the recovery is still nascent, fiscal support would be critical if the growth momentum is weaker than expected and the economy were to falter.”