THE PHILIPPINES is facing a stuttering economic recovery due to the sluggish pace of its vaccination campaign and the emergence of more infectious coronavirus disease 2019 (COVID-19) variants, Fitch Solutions Country Risk and Industry Research said.

In a note sent on Wednesday, Fitch Solutions said it cut its 2021 gross domestic product (GDP) growth forecast for the Philippines to 4.2% from the 5.3% penciled in last May, citing the reimposition of a hard lockdown in Metro Manila and the spread of the Delta variant.

The revised forecast is lower than the government’s 6-7% GDP growth target this year.

The think tank’s downgraded forecast came a day after the statistics agency reported the Philippine economy exited recession after GDP grew by 11.8% in the second quarter.

“The economy will face continued disruptions from the COVID-19 pandemic given its slow pace of vaccinations and difficulties  containing outbreaks,” it said in a note.

Fully vaccinated individuals only make up 10.74% or 11.614 million of the population, based on data from Johns Hopkins University. This is still far from the government’s target to vaccinate 70 million or the entire adult population by end of this year to achieve herd immunity.

Fitch Solutions noted that the Philippines “remains a long way off from reaching herd immunity such that it can ease preventative measures more significantly.”

Metro Manila and nearby provinces are under an enhanced community quarantine (ECQ) until Aug. 20, as the government tries to curb the spread of the more infectious Delta variant.

The Health department on Wednesday reported 12,021 new COVID-19 cases, bringing the active cases to 81,399.

Fitch Solutions warned that the latest lockdown will likely weaken household consumption growth.

“We have lowered our forecast for household consumption growth to come in at 3.5% in 2021 (from 4.0% previously), following a contraction of 7.9% in 2020, given subdued retail activity,” it said.

While retail activity was already weak before the lockdown, Fitch Solutions said the new surge in cases will dampen the improved consumer sentiment in the second quarter.

The think tank said the recovery in remittance inflows may be reflected through higher savings or used by families to offset lost income, instead of boosting consumption.

Even with the new lockdown, Fitch Solutions does not see significant fiscal stimulus in the second half, noting the government “balances debt concerns with supporting growth.”

“However, the government is also conscious of weakening foreign investor sentiment towards its bonds and is wary of increasing spending further. We expect the lockdown measures to hurt government revenues but also delay expenditure plans, with budgeted expenses not fully utilized by yearend. As such, we have revised down government consumption growth from 7.0% to 5.0%,” the think tank said.

Fitch Solutions estimates the fiscal deficit to reach 7.8% of the GDP this year, which is slimmer than the 9.3% budget gap projected by economic managers.

In the first half of 2021, fiscal deficit was at P716.1 billion, 30% lower than the P1.018 trillion programmed for the period. Overall government spending reached P2.206 trillion, 9.56% short of its P2.44-trillion target for the first half.

For 2022, Fitch Solutions expects the economy to grow by 6.8%, lower than the previous estimate of 6.9%.

It noted the rebound next year will most likely be backed by base effects when restriction measures are relaxed.

“We temper our outlook on two factors; firstly, we now expect fiscal support to be reigned 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. — L.W.T.Noble