S&P GLOBAL RATINGS downgraded its Philippine growth forecast to 7.9% this year as the upward spike in inflation weighs on the consumption-driven economy.

“Inflation is high despite the lack of demand, on the back of sharp supply-side driven increases in food prices. We expect this to be transitory, but it does weigh on consumption in the first half of the year,” the global debt watcher said in a note on Thursday.

The latest outlook is more pessimistic than the 9.6% gross domestic product (GDP) projection it gave in September 2020. The GDP forecast for 2022 was likewise trimmed to 7.2% from 7.6% previously.

S&P’s growth forecast for the Philippines is the second highest in the Association of Southeast Asian Nations (ASEAN) next to Vietnam (8.5%), and is followed by Malaysia (6.2%), Singapore (5.8%), Indonesia (4.5%), and Thailand (4.2%). However, this outlook is partly due to a base effect as the Philippines also saw the steepest economic contraction of 9.5% last year in Southeast Asia.

The country’s headline inflation has accelerated in the past months. Inflation quickened to 4.7% in February, beyond the 2-4% target by the central bank and the fastest since the 5.1% print in December 2018. Higher prices of goods is hurting households, whose consumption fuels 70% of the economy.

The government traced the inflation surge to low supply caused by the typhoons last year as well as the African Swine Fever outbreak. A price cap on meat products has been imposed in Metro Manila and higher pork imports were allowed in response to the supply-side disruptions that caused the price hikes in food products.

Aside from the inflation, muted mobility and the slow pace of coronavirus disease 2019 (COVID-19) vaccinations will also temper the country’s growth trajectory this year, S&P said.

“Mobility indicators remain far below pre-COVID levels, and movement restrictions have extended far longer than we expected. We continue to expect a pickup in mobility in the second half of the year, but there will be a delay in economic recovery,” the credit rater said.

Tighter COVID-19 rules are in place in Metro Manila, Cavite, Laguna, Rizal, and Bulacan until April 4, as the number of COVID-19 cases continues to surge.

On Thursday, the Health department reported a record-high 8,773 new coronavirus cases, with active cases now nearing 100,000.

Data showed 1.12 million vaccine doses have been administered as of March 23. The government is targeting to inoculate 70 million Filipinos within the year to achieve herd immunity.

S&P said the country’s vaccination efforts have been “expectedly slow.”

As the crisis continues, S&P said the prospect of higher fiscal support this year “remains doubtful.”

“The lack of additional policy support implies a sharper downside risk if the economy’s mobility suffers further impediments,” the debt watcher said.

House Speaker Lord Allan Jay Q. Velasco on Wednesday said he got an assurance of support for the proposed P420-billion Bayanihan to Arise as One Act.

While 224 members of the House of Representatives support the stimulus package, economic managers have previously said this is not needed as pandemic response measures are already covered by the national budget as well as the prior Republic Act No. 11469 or the Bayanihan to Heal As One Act. 

Meanwhile, S&P said they expect the Bangko Sentral ng Pilipinas (BSP) to keep watch on the transitory rise in inflation.

S&P affirmed the country’s BBB+ long-term credit rating in May last year with a stable outlook, suggesting the rating may be maintained over the next 18-24 months. — Luz Wendy T. Noble

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