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Moody’s Analytics says Philippine recovery questionable

Lawrence Agcaoili - The Philippine Star

MANILA, Philippines — The near-term recovery of the Philippines remains questionable amid the slow vaccination rollout, as well as the resurgence of COVID-19 infections, according to Moody’s Analytics.

In a report, Moody’s Analytics senior economist Katrina Ell and associate economist Dave Chia said the latest infection wave in the Philippines is the worst of the pandemic.

“But the near-term longevity of the recovery is questionable given the combination of low vaccine coverage and already-elevated daily infections,” Ell and Chia said.

The Philippines emerged from the pandemic-induced recession with a gross domestic product (GDP) growth of 11.8 percent in the second quarter from a contraction of 3.9 percent in the first quarter.

The number of infected individuals in the country has breached 2.5 million with more than 37,000 deaths.

“The risk of a more aggressive resurgence is high because of the potential strain on the already-stretched healthcare system,” Ell and Chia said.

Despite this, Moody’s Analytics said the government has moved away from citywide restrictions and lifted the mobility restrictions, especially for fully vaccinated individuals.

“This is allowing domestic demand finally to gather steam,” the research unit said.

However, Moody’s Analytics said monetary authorities in the Philippines are also busy with inflation as well as the painful memories of the taper tantrum by the US Federal Reserve.

Despite keeping interest rates unchanged at record lows on Sept. 23, the Bangko Sentral ng Pilipinas (BSP) raised its inflation forecasts to 4.4 percent this year, 3.3 percent next year and 3.2 percent in 2023 as inflation accelerated to a 32-month high of 4.9 percent in August.

Inflation averaged 4.4 percent from January to August and has been staying above the BSP’s two to four percent target since the start of the year.

“The BSP maintains that the rise in inflation is temporary, but the risk of elevated price growth becoming more entrenched has increased. This is despite the government hoping that supply-side reforms will help stabilize food prices from 2022,” Moody’s Analytics said.

The research arm of the Moody’s Group sait that the BSP may keep interest rates on hold and maintain an accommodative stance until late 2022.

“Ideally, monetary policy would remain on hold and firmly accommodative until late next year to support the recovery, but the BSP may be forced to act earlier if inflation does not cool. Our baseline assumes that the BSP will not raise interest rates until the second half of 2022,” it added.

Moody’s Analytics cited the case in late 2018 when the BSP raised interest rates for several consecutive months to help calm price growth as inflation edged toward seven percent year-on-year.

In terms of the impact of the taper tantrum, Moody’s Analytics said the Philippines is also vulnerable to the tide suddenly turning on emerging markets but its economy is generally seen as less vulnerable.

In his keynote speech during the Regional Macroeconomic Conference Series, BSP Governor Benjamin Diokno urged Filipinos to observe health protocols to pave the way for the safe reopening of the economy and the resumption of economic activities.

“Although there is clearly room for optimism, economic recovery will depend largely on the speed of the vaccination rollout and the expansion of the capacity of our healthcare system and the citizen’s commitment to observe the health protocol,” Diokno said.

The Philippines, Diokno said is now seeing green shoots of recovery with a GDP growth in the second quarter, declining unemployment, improving consumer and business sentiments, and investment grade credit ratings.

“The challenges of the pandemic may stay with us for a while, but we are hopeful that we will get back to where we were before the pandemic by the second half of next year. Now, more than ever, each one of us need to walk together and watch each other’s back so that no one gets left behind in this continuing journey,” the BSP chief said.

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