MANILA, Philippines — ANZ Research slashed its 2021 economic growth forecast for the Philippines to 4.8 percent from the original target of 7.1 percent.
In a note titled “The Philippines: Recovery is becoming tenuous,” ANZ chief economist for Southeast Asia Sanjay Mathur and economist Rini Sen said fundamentals point to a fragile recovery at best due to rising COVID-19 infections and slow vaccination rollout.
“While cases have decreased and restrictions lifted, the fundamentals point to a fragile recovery at best in 2021. Together with the fact that policy support will primarily come from the fiscal side for now, we are downgrading our 2021 GDP growth forecast to 4.8 percent,” Mathur and Sen said.
As a result, they said the country’s GDP likely contracted for the fifth straight quarter after shrinking by 3.7 percent in the first quarter amid rising COVID-19 infections and subsequent reimposition of the community lockdowns.
“With exports not recovering sufficiently and fiscal support volatile, overall GDP in the first quarter is likely to have contracted again by 3.7 percent year-on-year, marking a fifth consecutive quarter of contraction,” the economists said.
However, ANZ expects the Philippine’s GDP growth to improve starting the second quarter but the country is likely to lag regional recovery.
“The most important of these is that the majority of drivers of household consumption, the mainstay of growth in the Philippines, remain weak. Specifically, elevated under employment combined with tight credit standards of banks are having a detrimental impact on consumption,” ANZ said.
As these headwinds are unlikely to dissipate anytime soon, ANZ said the main source of consumption growth may come from remittances from overseas Filipino workers (OFWs) which are expected to rise by three to four percent this year.
ANZ said there is little need for new investments in the manufacturing sector that is beset by substantial excess capacity due to the unimpressive exports sector.
For 2022, ANZ sees a faster growth of 6.5 percent on the expected rise in COVID-19 vaccinations, paving the way for the further reopening of the economy.
“We expect a deeper recovery in 2022 once the COVID situation has stabilized on higher vaccinations,” Mathur and Sen said.