MANILA, Philippines — The Philippines may rebound from the pandemic-induced recession this year with a gross domestic product (GDP) growth of seven percent, but full recovery may only happen in the third quarter of next year, according to global banking giant Citi.
“We keep our 2021 GDP forecast at seven percent and expect a return to pre-COVID level in the third quarter of 2022,” said Nalin Chutchotitham, economist for the Philippines at Citi.
The Philippines slipped into recession as the economy stalled when Luzon was placed under enhanced community quarantine in mid–March to slow the spread of the virus.
As a result, the economy contracted by a record 9.5 percent last year, ending 22 years of positive economic growth. The Philippines last slipped into recession in 1998 when the GDP contracted by 0.5 percent due to the Asian financial crisis.
Chutchotitham said there is a need to further relax the lockdown in the country to further reopen the economy.
She said Socioecoomic Planning acting Secretary Karl Kendrick Chua is pushing for greater mobility allowance to the young or those under 15 years old who were not allowed to leave home due to COVID measures.
The director general of the National Economic and Development Authority (NEDA) noted that 40 percent of the country’s population is below 20 years old, and this contributed heavily to the drop in domestic demand.
Citi expects the Bangko Sentral ng Pilipinas (BSP) to keep the benchmark interest rate at an all-time low of two percent during its first rate-setting meeting of the year on Feb. 11.
“The BSP’s focus is likely to be on efforts at distribution of liquidity to aid the real sector,” she said.
According to Citi, inflation may accelerate further to 3.3 percent this year after slightly picking up to 2.6 percent last year from 2.5 percent in 2019.
“Higher inflation may also require some caution. But there is higher risk for additional fiscal and monetary stimulus to offset significant income losses and aid in higher debt burden, in order to avoid prolonged economic scarring,” Chutchotitham said.
Citi said the Philippine government could still afford to spend more, with public debt at 51 percent of GDP.