NOMURA GLOBAL Research downgraded its growth projection for the Philippines to 6.8% in 2021 from 7.1% earlier, citing the government’s slow vaccine procurement process relative to the region.

It added that the offshoot is a delayed recovery, which may force the central bank to provide further support for the economy on the monetary policy side amid limited options in terms of fiscal measures, Nomura Global Research said.

In a note issued Wednesday, Nomura Global analysts, including Euben Paracuelles and Rangga Cipta described the vaccine acquisition deals nailed down by various governments in the region as “pivot points” for their economies, with the Philippines and Thailand the notable laggards.

These two countries are expected to have their “pivot points” sometime in the fourth quarter of 2021. Nomura Global said China, Hong Kong, Singapore, and South Korea’s pivot points are expected by the second quarter of next year, followed by India and Indonesia a quarter later.

Nomura Global projects a gross domestic product contraction of 9.8% in 2020.

The government’s official forecast is for a contraction of between 8.5% and 9.5%. Its 2021 outlook is for growth of between 6.5% and 7.5%.

“The main reason for our more cautious view on the pace of the recovery is the continued drag from the COVID-19 (coronavirus disease 2019) outbreak, which we think is unlikely to be brought under control until the (Philippine) vaccine pivot point arrives in the fourth quarter (our baseline assumption),” Nomura Global said.

UK vaccine developer AstraZeneca PLC is working on its application for clinical trials in the Philippines with the Food and Drug Administration. The government, alongside some conglomerates, entered into an agreement with the UK firm in late November for 2.6 million vaccine doses, which is expected to be distributed by June. The proposed 2021 budget provides for P8 billion in vaccine procurement funds, which is expected to be supplemented by debt.

Nomura Global also cited weak fiscal support as a possible risk to the recovery.

In the third quarter, government spending growth slowed to 5.8% from the 21.8% pace set in the three months to June and the 8.8% logged a year earlier, according to the Philippine Statistics Authority.

“We have been flagging the risk of a fiscal cliff in the second half of 2020, and it appears to be materializing… This still-low level of fiscal expenditure growth, in our view, may remain a drag to the recovery in the context of the ongoing outbreak, which would require more sizable support measures,” it said.

Given the government’s “conservative” view on fiscal measures and the weak pace of the recovery, Nomura Global analysts said the Bangko Sentral ng Pilipinas (BSP) faces pressure to maintain an easing stance.

They said they expect the central bank to bring key policy rates to a further low of 1.5% through 25 basis points (bps) cuts in December and in the first quarter of 2021.

“BSP continues to highlight a data-dependent approach to its monetary policy decisions, which suggests that, if the pace of economic recovery continues to underperform official forecasts, as we expect in the near term, policy rate cuts would then be warranted, especially with the inflation trajectory likely to remain benign and within BSP’s target,” it said. 

In November, the central bank reduced benchmark rates by 25 bps, bringing total easing this year thus far to 200 bps. This brought the overnight reverse repurchase, lending, and deposit rates to record lows of 2%, 2.5%, and 1.5%, respectively. The Monetary Board will have its final policy-setting meeting this year on Dec. 17. — Luz Wendy T. Noble