INTERNATIONAL think tank Fitch Solutions has slashed its growth forecast of the Philippines for the year amid the country’s struggle with new Covid-19 outbreaks.
The research arm of the Fitch group said it now projects the country to grow by 4.2 percent for the year, down from its earlier projection of 5.3 percent, citing the continued disruptions to output from rising Covid-19 cases.
The new projection came amid the Philippine Statistics Authority’s (PSA) announcement that the country’s gross domestic product in the second quarter of the year hit 11.8 percent, effectively ending the recession in the country.
“The economy will face continued disruptions from the Covid-19 pandemic given its slow pace of vaccinations and difficulties containing outbreaks. With only 9.9 percent of the population fully vaccinated as of August 5, the country remains a long way off from reaching herd immunity such that it can ease preventative measures more significantly,” the think tank said.
Fitch Solutions also said the locking down of Metro Manila in August and the heightened threat from the more infectious Delta variant has led it to lower its expectations for domestic activity through the remaining months of the year.
“We have lowered our forecast for household consumption growth to come in at 3.5 percent in 2021 from 4 percent previously, following a contraction of 7.9 percent in 2020, given subdued retail activity. Retail activity was already weak before the impact from the imposition of a two-week lockdown in Metro Manila, running from August 6, was accounted for,” Fitch Solutions said.
The think tank also revised downward its expectation of government consumption growth from 7 percent to 5 percent. It also said that despite the pick-up in the trade cycle in 2020, it expects the country’s net export contribution to prove a “drag” on headline growth this year.
“We forecast the net exports’ contribution to flip from positive in 2020 to negative in 2021. We flag rising shipping costs and global supply-chain constraints as headwinds to Philippines’ trade activity through the second half of 2021,” Fitch Solutions said.
“Higher global commodity prices will cause an uptick in imports. Moreover, as a re-exporting hub, the rebound in external demand will result in a pick-up in imports. On the export side, rebounding activity in Europe and North America will be partially offset by pandemic-related disruptions to the recovery in demand across Asia, with the slowdown in Chinese demand growth also weighing on regional trade,” it added.
For next year, Fitch Solutions also cut their forecast from 6.9 percent down to 6.8 percent. It, however, said the country is expected to benefit from base effects to boost headline growth in 2022.
“We temper our outlook on two factors; firstly, we now expect fiscal support to be reined in more aggressively once the economy is on a more sustained recovery path, so that the government can begin reducing its public debt load,” Fitch Solutions said.
“Secondly, we believe the rebound in household consumption could be tempered by deleveraging and weakened household balance sheets,” it added.