HOUSEHOLD CONSUMPTION could pick up in the third quarter as sentiment improves and remittances recover, but this may not be sufficient to bring economic growth this year to pre-crisis levels, according to Standard Chartered Bank.

Household consumption, on which the economy is heavily dependent, is expected to post sustainable and steady growth by the three months to September because consumer sentiment, job creation and wages are expected to remain muted in the first half, according to Chidu Narayanan, an economist at Standard Chartered, who was speaking at an economic briefing organized by the Bank Marketing Association of the Philippines.

Lockdowns and uncertainty over the resolution to the pandemic dampened sentiment and consumption last year as businesses closed and millions lost their jobs. Gross domestic product (GDP) in 2020 posted a contraction of 9.5%.

“If the government does engage in infrastructure investment very strongly in the first half of the year, that could boost sentiment and we could see a rebound (in consumption) in Q3,” Mr. Narayanan said.

He said a robust increase in remittances can be expected this year after an 0.8% contraction in 2020.

Effective government spending to stimulate the economy is expected to take two forms, he said — direct cash transfers to poor households and affected sectors, and efficiently spending the P1.2-trillion budget for infrastructure projects.

Muted consumer demand in the coming months will likely dampen credit growth as well despite the low interest rate environment according to Mr. Narayanan, as companies defer their expansion plans while their plants are operating below capacity.

“We think that credit growth will remain subdued for a few months at least. One big reason for this is there is no appetite to invest. Corporations are running below capacity because of the big contraction last year,” he said.

“Unless you see forecasts and expectations going back to pre-pandemic levels soon, corporations do not have an incentive to be investing,” he added.

Without an increase in investment, bank lending will remain subdued, he said, and the earliest Standard Chartered expects a solid pickup in credit growth is the second half.

Bank lending dipped for the first time in 14 years in December, falling 0.7%, after a rise of 0.5% in November, according to the central bank.

Standard Chartered does not expect the Bangko Sentral ng Pilipinas (BSP) to further reduce benchmark interest rates this year after bringing them to record lows last year, adding that it expects inflation to remain manageable.

The bank expects inflation to remain elevated in the first half given the low base in 2020 and rising global oil prices. It forecast headline inflation to average 3.5% this year, or towards the higher end of BSP’s 2-4% target range.

Standard Chartered expects GDP growth this year of 6.1%, accelerating to 6.5% next year. Its outlook falls outside the official estimates of 6.5-7.5% this year and 8-10% next year. — Beatrice M. Laforga