THE Philippine economy is expected to perform lackluster this year, as the Duterte administration is unlikely to meet its target of reaching herd immunity for the population by the end of the year, economists from Standard Chartered Bank said.
In an online news briefing last Thursday, Standard Chartered announced that it has cut its growth forecast of the Philippines from their assumption of 6.1 percent in January down to 4.6 percent for this year.
Standard Chartered Economist Chidu Narayanan said local private sector demand will likely remain subdued on soft consumer and business sentiment. The economist also said domestic consumption will likely remain modest for the rest of the year.
Narayanan said the slow pace of vaccination roll out exposes the country to potential new waves of Covid-19 cases and poses risk to their current 4.6 percent forecast.
“New Covid infections declined following nationwide lockdowns in May; but they remain elevated and above 2020 highs. New cases have increased recently following the relaxation of restrictions; a sharp increase in the coming weeks could lead to the re-imposition of lockdowns, further dampening sentiment and growth,” the economist said.
“The Philippines’s low-vaccination rate increases the risk of new Covid waves. Less than 2 percent of the population is fully vaccinated; only 4.3 percent of people have received at least one dose. At the current rate of vaccination, the Philippines is unlikely to meet its target of reaching herd immunity by end-2021,” he added.
In its Philippine assessment earlier this year, Fitch Ratings also said the government’s target of vaccinating up to 70 percent of the eligible population by end-2021 is an “ambitious goal” the current status of inoculation in the country.
Narayanan also warned of a risk scenario that growth could dip to the 3 percent territory if the government fails to pick up investment spending towards the end of the year.
“Consumption is going to be very very soft. Private investment is also likely to be very subdued. Given that most corporates are still at overcapacity and demand outlook is very sober, that puts the onus on the government,” the economist said.
“We do not expect a substantial increase in infrastructure investment. We think that the earliest Build, Build, Build infrastructure [spending] will pick up substantially will be the middle of the third quarter. If we do not see investment pick up by October or November, then we think that the likelihood that there is no significant investment pickup is very very likely and that puts risk to our forecast to the downside,” he added.
For 2022, Standard Chartered sees growth hitting 6.6 percent before stabilizing to 5.9 percent in 2023.
With the gloomy growth outlook for this year, Standard Chartered said they do not see the Bangko Sentral ng Pilipinas (BSP) pulling back its accommodative stance anytime soon.
“BSP is likely to maintain its accommodative policy for the next few quarters to support growth. Declining inflationary pressure should enable BSP to prioritize growth, especially in the absence of substantial fiscal support. We expect it to keep the policy rate at the current record low,” Narayanan said.
“Further cuts are unlikely in 2021, in our view; BSP may wait for sentiment to improve before considering further rate cuts in order to maximise the impact of any further easing,” he added.