Fitch Solutions raises PHL GDP forecast for 2021

THE PHILIPPINE economy is now expected to grow by 4.5% this year, as looser lockdown restrictions support a rebound in consumer spending, according to Fitch Solutions Country Risk and Industry Research.

The think tank in a note on Wednesday raised its 2021 gross domestic product (GDP) growth projection to 4.5%, from 4.2% previously. This is within the government’s 4-5% target.

The Philippine economy grew by a faster-than-expected 7.1% in the third quarter. Year to date, GDP growth is at 4.9%.

“A gradual relaxing of domestic mobility restrictions and continued support measures from policy makers helped propel activity, bringing the economy closer to its pre-pandemic output levels,” Fitch Solutions said.

It noted signs of a continued recovery can be seen in the early part of the fourth quarter, as more businesses were allowed to resume operations when Metro Manila was placed under Alert Level 2 on Nov. 5.

The Philippine capital has also seen higher rates of vaccination against the coronavirus disease 2019 (COVID), but only 32.5% of the country’s population have been fully vaccinated according to Johns Hopkins University.

“Nevertheless, the Philippines still remains vulnerable to COVID-19 outbreaks given disparities between regional vaccination rollouts and the lower efficacy rates of the vaccines administered,” Fitch Solutions said, adding there may be a “greater” need to administer booster shots.

New daily COVID-19 cases have declined since the peak of over 26,000 on Sept. 11. The Health department reported 2,646 new infections on Wednesday, bringing the total active caseload to 29,138.

With the easing of restrictions, Fitch Solutions said private consumption will likely grow by 3.7% this year, higher than the previous 3.5% forecast.

“Google mobility data are already reflecting a strong rebound in domestic activity, with data for retail and recreation, and grocery and pharmacy mobility signaling the highest level of activity since the onset of the pandemic in Q2 2020. This tallies with the recovery in the retail index, which in October rose to its highest level since July,” it said.

Private spending is then expected to rebound to a 5% growth next year, spurred by remittances boosting household incomes.

But unemployment and inflationary pressures could stifle real wages, which would then cap consumption growth, the note said.

Gross fixed capital formation could grow 11% in 2021, revised from the 9% seen previously.

Fitch Solutions said growth will be supported by favorable base effects that could diminish by next year. The think tank projects 15% growth in 2022, lower than the 18% in the previous forecast.

“Looking to 2022, the continued spare capacity in the economy will act as a cap investment appetite and we highlight declines in house prices through the pandemic as potentially dampening real estate construction activity,” Fitch Solutions said.

“That said, rebounding business optimism and manufacturing activity will support capital goods investment.”

Government spending is expected to rise by 8.5% this year (from 5% previously estimated) and 4.5% next year (from 2%) as the country’s public debt goes up.

“We expect policy makers to begin to focus on consolidating debt levels over the coming quarters, which could lead to greater scrutiny of fiscal expenditure plans. Indeed, while the proposed 2022 budget plans an 11.5% increase in expenditure, we do expect revenue boosting measures to also be undertaken to narrow the budget deficit,” Fitch Solutions said.

The think tank also trimmed its Philippine GDP forecast for 2022 to 6.5%, from 6.8%, previously.

“While we expect economic growth to increase further in 2022, remaining challenges will stop the Philippine economy returning to its pre-pandemic growth trajectory.” — J.P.Ibañez