Philippine economy headed for recovery

CEBU, Philippines — The Philippines is heading to a much faster race to recovery, assuming a new COVID variant doesn’t materialize.

Bank of the Philippine Islands (BPI) head economist Jun Neri said economic recovery will be pushed by high-contract services, stressing that, “the experience of the past five months has shown that consumers are now more comfortable to engage in face-to-face economic transactions despite the continued presence of COVID.”

Furthermore, the BPI economist also expects faster growth rate for investment spending given the rising demand from consumers.

“Businesses will likely invest more in the expansion of their capacity in order to meet the demand,” noted Neri.

However, other headwinds like inflation, rising interest rates, and supply chain issues may prevent the economy from maximizing this recovery, he added.

“So far, pent up demand has offset the impact of inflation, but a prolonged period of elevated prices may eventually hurt consumer confidence. We continue to expect a 7.3 percent full year growth for the economy this year given the latest GDP print, but this may go down to six percent depending on the behavior of oil prices for the rest of the year,” he explained.

The country’s GDP grew by 5.7 percent in 2021 after falling by 9.6 percent in 2020. With the 1st quarter growth, the economic output of the country is now three percent below the pre-pandemic level.

In contrast, the output of Vietnam and Indonesia has already exceeded pre-pandemic levels.

According to Neri, the economy has been able to sustain its recovery momentum despite the headwinds both here and abroad.

“Mobility has recovered further especially in February and March when the COVID cases subsided. The movement of people in public places was back to pre-pandemic level in most of the 1st quarter as people were more confident to go out given the increasing vaccination rate of the country and the decline in COVID cases,” he said.

He also mentioned that the election campaign season that started in February also contributed to the mobility gains. As a result, economic activity had a strong recovery during the quarter. If the current growth momentum is sustained, the economic output of the country will likely return to pre-pandemic level by second quarter 2022.