S&P raises growth forecast for PHL

But warns Omicron coronavirus variant may threaten recovery

THE PHILIPPINES is likely to grow by 5% this year, boosted by the stronger-than-expected rebound in the third quarter, according to S&P Global Ratings.

However, S&P warned that the Omicron variant of the coronavirus disease 2019 (COVID-19) could pose a new risk to the region’s recovery.

“Growth in the Philippines surprised on the upside with year-over-year expansion of 7.1% [in the third quarter]. This surpassed the consensus expectation for a 4.8% increase, on strong consumer activity,” S&P said in a note on Tuesday.

The debt watcher’s latest estimate of 5% gross domestic product (GDP) growth is faster than the 4.3% forecast it gave in August and matches the upper end of the government’s 4-5% growth forecast for the year. Year to date, Philippine economic growth is at 4.9%.

Household spending, which accounts for about three-fourths of GDP, rose by 7.1% year on year in the third quarter.

The Philippines was an outlier compared with its regional neighbors which saw weaker economic activity in the July to September period amid a Delta-driven surge, the ratings agency said. 

The country is expected to grow faster this year than Indonesia (3.3%), Malaysia (2.6%), Vietnam (1.9%), Thailand (1.2%), but slower than Singapore (6.5%), based on S&P projections.

However, it should be noted that the Philippine economy had the steepest contraction in the region at 9.6% in 2020 as it imposed one of the world’s strictest and longest lockdowns.

S&P said Philippine GDP is projected to rise by 7.4% in 2022. This is slightly slower than the 7.7% it gave in August due to the base effect of the stronger economic growth it forecasts for 2021.

S&P noted Southeast Asia’s growth is gaining traction as restriction measures are gradually relaxed, vaccination rates are picking up and travel restrictions being eased.

“This is leading to a gradual improvement in domestic demand and widening improvement in manufacturing activity in the fourth quarter,” it said.

However, S&P warned that the Omicron variant may threaten the region’s rebound, as governments may reimpose short-term containment measures.

“We believe the new Omicron variant is a stark reminder that the COVID-19 pandemic is far from over… We believe this shows that, once again, more coordinated, and decisive efforts are needed to vaccinate the world’s population to prevent the emergence of new, more dangerous variants,” S&P said.

The Philippines has already fully vaccinated 40.58% or 43.87 million of its population. Officials are hoping to vaccinate 70 million Filipinos by the end of 2021.

Meanwhile, S&P expects inflation in the Philippines to average 4.5% in 2021, above the 2-4% target of the central bank. It is expected to ease to 2.4% in the next two years.

It also sees the Bangko Sentral ng Pilipinas keeping its key policy rate steady until the end of 2022, before raising rates to 2.75% by the end of 2023.

GLOBAL SLOWDOWN UNLIKELY
Meanwhile, Fitch Ratings in a separate note said that it may be too early to consider the impact of the Omicron variant on global economic forecasts since there is no clear data yet on its transmissibility and severity.

“We currently believe that another large, synchronized global downturn, such as that seen in (first half of 2020), is highly unlikely but the rise in inflation will complicate macroeconomic responses if the new variant takes hold,” it said.

The possibility of nationwide lockdowns to curb the spread of Omicron will continue to be a risk to the global economy, Fitch said. It noted that tourism and travel will likely be disrupted once again, and the shift to services from goods consumption will likely slow.

“However, recent increases in inflation will complicate any policy response to Omicron, which could have an inflationary effect if new lockdowns or voluntary social distancing constrain labor supply recoveries or exacerbate global supply-chain shortages and bottlenecks. Hence, we believe central banks could be wary of delaying the normalization of monetary policy settings in response,” Fitch said. — Luz Wendy T. Noble