THE gradual recovery of domestic demand has led local economists to believe that the Philippine economy is already on the mend from the ravages of the Covid-19 pandemic.
In a briefing on Wednesday, First Metro Investment Corporation-University of Asia and the Pacific (FMIC-UA&P) Capital Market Research said the economy will likely post a full-year growth of 5 to 6 percent this year.
This forecast was lower than the 5.5 to 6.5 percent estimate the think tank gave previously, but UA&P economist Victor A. Abola said this was mainly affected by the first quarter performance of the economy. The country’s GDP in the January-to-March period contracted 4.2 percent.
“This half percent is fairly minor which is more aligned to what the government is projecting. They also lowered their growth projection,” Abola said. “We more or less aligned [our expectations] with how the government views the situation right now.”
In his presentation, Abola said the strengths of the Philippine economy right now include ample fiscal and monetary space, robust overseas Filipino worker (OFW) remittances, and spreading optimism. These are boosting domestic demand.
“I think there is cause to be more optimistic but not exactly very, very optimistic. We can see things looking up. The Philippines is an economy bouncing back,” Abola said.
Caveats
AS for the caveats, Abola said, these include the ongoing pandemic and the rollout of the vaccination program as well as challenged supply chains owing to global trade disruptions.
Other challenges include the strong peso. However, Abola said the peso-dollar rate could average P49 to P50 to the greenback this year.
Further, Abola said concerns about the Ease of Doing Business remain as investors still encounter issues in conducting their business in the country. In another forum on Wednesday, former Socioeconomic Planning Secretary Arsenio M. Balisacan shared this guarded optimism and said the country’s recovery appeared “slow, uncertain, and weakly inclusive.”
Balisacan said more needs to be done such as strengthening the public health system, as well as efforts that promote faster and a more inclusive recovery. This will allow the economy to get back on track to a high growth path.
“The Covid-19 pandemic plunged the Philippine economy in 2020 into its most severe recession in recent decades, putting almost 5 million workers out of work at its height, eroding at least three years of recent gains in poverty reduction and inflicting scars that threaten the economy’s potential for inclusive growth. [But] the economy is now showing signs of turning around this year as vaccinations get under way. However, recovery appears slow, uncertain, and weakly inclusive,” Balisacan explained.
Efforts to push for inclusive growth are imperative given that quarantine measures put in place to prevent the further spread of Covid-19 have caused more Filipinos to experience hunger and pushed them back into poverty.
Balisacan said data from the Social Weather Stations (SWS) showed both moderate and severe hunger increased in 2020 from December 2019. Further, poverty incidence at $3.12 purchasing power parity per day levels increased to around 8.5 million to 9 million, based on Balisacan’s estimates made last year.
He added that the pandemic exacerbated existing inequalities and even created new ones such as disproportionate job losses for less-skilled workers in high-contact sectors. Balisacan also noted that employment in the informal sector increased by 500,000 due to the pandemic.
The former director general of the National Economic and Development Authority (Neda) said while working remotely has become an option during the pandemic, not all workers are able to avail of this. This was especially the case with poorer workers.
“Low-skilled and unskilled workers, fortunate enough to remain employed, are mostly unable to work remotely. Hence, the poorer workers now face a double burden of decreased income and increased health risk. Lower income levels means more hunger and less access to nutritious meals which can lead to malnutrition,” Balisacan said.
Roots of optimism
ABOLA said domestic demand has been improving since the plunge recorded in the second quarter of last year, when the government imposed lockdowns.
In the first quarter of 2021, Abola noted that consumption spending growth was at a contraction of 5 percent, a far cry from the 15-percent contraction in the second quarter last year.
He added that investment spending has breached the P800-billion mark in the first three months of the year, from below P200 billion in the April-to-June period last year.
Abola deems the country’s debt-to-GDP ratio as “still okay” and expects it to rise to 62 percent in 2021 and 66 percent in 2022. He added that the growth recorded by OFW remittances is 13 percent in April, a three-year high.
He noted that while millions remained jobless, the gains in employment have more than offset the losses, based on the monthly Labor Force Survey results of the Philippine Statistics Authority (PSA).
“Our dependable and resilient OFW remittances, which grew 13 percent year-on-year in April this year, and BPO services are anticipated to perform even better. As employment starts to pick up and more people get inoculated, consumer confidence is also expected to improve. The upcoming election next year is likewise anticipated to support growth,” First Metro President Jose Patricio Dumlao said.
FMIC noted that the faster global economic recovery, accelerated vaccine mobilization, sustained supportive fiscal and monetary policies, and the government’s commitment to push infrastructure projects, are expected to fuel growth. With its high multiplier effect, the infrastructure spending program of the government will be one of the main drivers of growth.
Inflation is projected to remain elevated at 4.2 percent even if food prices have adjusted downward. The upward movement is due mainly to high crude oil prices and supply chain bottlenecks.
In the debt market, longer tenors are opening up, which means investors are willing to take on more risks for better returns. With excess liquidity of P2.12 trillion, interest rates should be down but inflationary pressures are pulling it up. For the rest of the year, interest rates are expected to slightly increase from its current levels.
Image courtesy of Roy Domingo