AN unprecedented surge in the number of Covid-19 cases through a new variant as well as high oil prices are among the risks that could dampen economic growth until next year, according to the National Economic and Development Authority (Neda) and local economists.
On Tuesday, the Philippine Statistics Authority (PSA) reported that the economy grew 7.1 percent in the third quarter of the year, faster than the contraction of 11.6 percent in the same period last year. But it was slower than the 12 percent posted in the second quarter this year. (See story here: https://businessmirror.com.ph/2021/11/09/3-gdp-up-7-1-psa/)
Socioeconomic Planning Secretary Karl Kendrick T. Chua said the only risk for the economy is a resurgence of cases which may or may not be brought by a new Covid-19 variant. He said this remains a threat even if new cases have declined and more Filipinos are vaccinated.
“It is really about an unprecedented or unknown surge or a variant. [But] we cannot use Covid-19 [as an] excuse anymore. We have lived with it for 20 months, we know what we can do and what we should not do,” Chua said.
“The main risk that I see is really a new variant that is totally unexpected. Outside that, I think we have the policy instruments and the experience to manage and help the economy grow in the last quarter and in the next year,” he explained.
2 more weeks
De La Salle University economist Maria Ella Oplas agreed that a surge in cases would harm the country’s economic prospects, and is holding off celebrating the decline in cases.
Oplas said she is waiting for two more weeks to see if easing the Alert Level led to a surge in cases or not. She said as it is, the number of people in malls and other public areas is concerning.
While she understood the yearning of people to go out and spend time with loved ones, these activities could lead to an increase in cases, Oplas said.
“It’s kinda scary with the intense yearning of people to go out, they forget to maintain social distance etc. So I’m scared,” Oplas told the BusinessMirror.
“If cases will not increase again, I see [a further] improvement in the economy. [But] until we see the result after two weeks, we are not out of the woods yet,” she said.
Ateneo Center for Research and Development [Acerd] Associate Director Ser Percival K. Peña-Reyes said one of the risks right now, in relation to Covid-19, is the B.1.617.1 variant, first detected in India.
Health Undersecretary and spokesperson Maria Rosario Vergeire earlier confirmed that one patient has tested positive for this particular Covid-19 variant.
“We hope that the number of severe cases and deaths do not increase. [This] might trigger yet another lockdown if we become complacent,” Peña-Reyes told this newspaper.
These concerns were shared by UnionBank Chief Economist Ruben Carlo Asuncion. Another surge in cases will automatically derail recovery. This is possible, Asuncion said, given the easing of mobility restrictions and the coming holidays. The election next year is another cause for concern, especially if politicians and their supporters are not careful.
University of Asia and the Pacific economist Victor A. Abola said the elections are the far greater risk to the economy, especially next year. The uncertainty of a Presidential election is always significant.
“The main risk to the economy is political. Any blatant cheating puts all forecasts on hold. We don’t know what some groups may do,” Abola told this newspaper via e-mail.
Oil, supply chain woes
To University of Asia and the Pacific School of Economics Dean Cid L. Terosa, oil prices pose a risk to the economy as such could dampen growth.
Terosa also considered the supply chain issues being experienced globally as well as the new wave of Covid-19 infections in many Western countries as risks to the local economy.
However, Terosa said the increase in oil prices alone as well as other risks will not prevent the “upward movement of the economy.” He still expects the economy to post decent growth this year and next year.
“For 2021, there is a good chance that we can achieve the 4-5 percent target. If fourth quarter growth remains strong, the economy can even grow beyond 5 percent. For 2022, [a] 5-6 percent growth isn’t farfetched,” Terosa said.
Oplas, meanwhile, warned that the fourth quarter will likely see oil prices rising more due to increased demand. It is also likely that the reopening of many economies worldwide will increase the demand for oil.
This will come to a head given that there is a low supply owing to the colder weather in oil-rich countries. This is on top of the energy crisis being experienced by China, she noted.
“We see oil prices to be a critical ingredient to a smoother economic recovery. If it rises further and even reaches $100/barrel in 2022, this will challenge PH’s economic recovery,” Asuncion said.
However, Asuncion said that as long as supply chains, logistics, and labor remain available in advanced economies, this can “offset pressures prices overall and stunt the impact of higher oil prices.”
“Oil prices so far have been largely a function of supply provided by Opec plus. The US has recently asked for increased supply and something has got to give,” Asuncion said.
On Neda’s part, Chua said oil prices are currently trading at around $80 per barrel and are on track to fall to $70 per barrel in the coming months and for the rest of 2022.
Chua said the government is closely monitoring oil prices and is ready to adjust growth estimates and policies.
Growth drivers
However, Chua said, growth drivers for the Philippine economy that will support the recovery include sectors that were greatly affected by the quarantine.
This means, the recovery in sectors like tourism, amusement, the “kid industry” will see even stronger recovery because of the increase in the capacity restrictions.
“I think it is very broad-based; you know Covid-19 hit the economy broad based so we are seeing a broad-based recovery in the third quarter; we expect that in the fourth quarter and also in 2022,” Chua said.
Chua remains confident that the Philippines can become an Upper Middle Income Country by the end of 2022 or early 2023.
However, if the recovery is strong, this goal, postponed due to the pandemic, may come to fruition within 2022. “I think given the strong progress, the likelihood of achieving that even within 2022 is now higher,” Chua said.
Other sources of growth, Asuncion said, include efforts to build back the economy better, partly through digitalization which has made working and learning during a pandemic crucial.
The elections, Abola said, will also be a major factor. He said election spending will be felt in the first semester of 2022. However, Abola said, the challenge is how to sustain this until the end of 2022.
Image courtesy of Nonoy Lacza