Philippines eyes ambitious growth return after record collapse
MANILA, Philippines — The Philippine economy would slump deeper than initially thought this year, an expected projection that already prompted the Duterte administration to look to next year and mount a convincing bounce-back for Southeast Asia’s worst economic performer.
Gross domestic product (GDP) would likely shrink between 8.5-9.5% year-on-year in 2020, worse than the 4.4%-6.6% contraction seen last July, the Development Budget Coordination Committee (DBCC), the interagency panel of economic managers, said.
The gloomier outlook followed what officials said were a “prolonged” lockdown of the archipelago that disrupted business and sapped consumer confidence, leaving the economy without its typical driver of household spending that accounts for 70% of annual economic output. Exports would dive 16% this year, while imports would implode a bigger 20% from 18% considered previously.
For the first 3 quarters, GDP lost 10% year-on-year.
Already, the Duterte government is trying to move forward by sticking to its 6.5%-7.5% growth assumption for next year, and an upwardly revised 8-10% target for the entire 2022, by the end of which President Rodrigo Duterte would have already left office.
“As the economy gradually moves towards full reopening, we expect significantly better economic outcomes next year,” DBCC said.
Acting Socioeconomic Planning Secretary Karl Kendrick Chua told reporters a “more relaxed form of quarantine” next year, and a full coronavirus vaccine rollout by 2022 would help hit the ambitious targets. Finance Secretary Carlos Dominguez III agreed.
“The productive capacity of the Philippines has not been damaged. What has limited us is the fear of getting infection. But the factories are there, the call centers are there. These factors of production are there,” Dominguez said in an online briefing.
As it stands, the Duterte government’s recovery strategy has not changed. Apart from easing prohibitions to allow more people to go out, officials were also banking on savings to be generated by companies once the Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill is enacted and lower corporate taxes. Currently, the measure is undertaking final touches by House and Senate contingents before transmitting it to Duterte.
They are also hoping that another bill, the Financial Institutions Strategic Transfer, would prompt banks to lend more as wanted by central bank that gave them more funds through rate cuts. FIST, also under Congress deliberation, would absorb bad loans preventing lenders to extend credit to consumers. Bank lending went up only 1.9% year-on-year in October, the weakest in nearly 14 years.
Calls for more fiscal stimulus rejected
What has been persistently missing, and constantly sought for recovery however, was a bigger fiscal stimulus, something the administration has been hesitant to give over fears of losing its most prized investment grade credit rating.
Alas, this hesitation has finally shown in black and white. For this year, the budget deficit is seen widening to 7.6% of GDP, which while at record level, is narrower than July’s 9.6% assumption. The narrowing will be facilitated by higher revenues of P2.85 trillion from P2.52 trillion seen originally, and lower expenses of P3.23 trillion from P3.33 trillion originally.
Amid growing public needs and calls even from former state officials to do more, DBCC reiterated sticking to the current conservative program. “We will not abandon the prudent fiscal management set by President Duterte…,” it said.
Dominguez, in the briefing, doubled down on this commitment. “There is no direct relationship between stimulus and GDP growth…What is really holding back our economy at this time, it seems to me is the lack of confidence,” he said.
The deficit is poised to widen slightly to 8.9% of GDP by 2021 from originally 8.5%, and to 7.3% from 7.2% in 2022 on the back of higher than originally programmed spending. But this would largely come from unused allocations in 2022 that the government intends to utilize over the next 2 years.
Other targets
With a weak economy, inflation is seen staying under control at between 2.4-2.6% this year, and 2-4% in 2021 and 2022. As of October, consumer prices have risen an average of 2.5%.
Helping tame inflation is a strong peso seen trading between P48-P50 to a dollar this year, stronger than the P50-P52 projection last July. A wider P48-P53 band was set for next year and in 2022, also firmer than the initial P50-P54.
Goods exports and imports, meanwhile, are forecast to grow 5% and 8%, respectively over the next 2 years.
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