Economic recovery in 2022?

In the companies where I have involvement, September is the usual start of our budget process in discussing the assumptions for the income and resource projections of the coming year. This year due to the COVID pandemic and the difficulty in visualizing the macro-economic conditions in the Philippines and of the world, it took time to agree on the revenue/sales, operating expenses, capital expenditures and financial sources interest costs. But as the budgets have to be presented to the board of directors before the end of the year, we arrived at a consensus that the Philippine economy will grow in 2021 but the recovery will really be in 2022.

The Philippines GDP in 2019 was at $377 billion (at constant prices) which I will round off to $400 billion/P20 trillion to include the unrecorded informal economy. Given the last three quarters downturn which put us in a recession, the government is hoping that the full year reduction of the economy can be held at minus 7%. As of end November, with still some restrictions in many economic activities, private economists believe the economic contraction will be in the minus 9% to minus 10% range. In this scenario, our P20 trillion economy in 2019 will shrink to P18 trillion, P2 trillion lower in the value of goods and services or purchases from 2019. In per capita terms, this is a loss of P20,000 per Filipino in 2020. To the upper class this is affordable but to the lower-middle class and the lower class, this is terrible. All sectors of the economy have been going down in the last nine months except for agriculture, with travel and tourism taking the hardest hit with revenues down by as much as 80%. Manufacturing and construction are down by 40%, same as car and motorcycle sales, that even offsetting the increase in food sales, overall consumer demand/consumption expenditures will decrease by 25% in 2020.

The increase in government expenditures for public health and subsidies to the affected workers and industries, together with the Bangko Sentral infusion of liquidity to the financial/banking system which is some P1 trillion alleviated the recession, but will not be enough until consumer and business confidence is back. This confidence is also necessary to get back foreign investments in 2021 and 2022, as all foreign chambers surveys show that foreign companies in the Philippines are also in a holding position in 2020 and 2021, as far as expansions and increase investments in the country. Our solid macro-economic fundamentals and stable banking system were strong anchors when we went into the 2020 recession, so we will definitely grow in 2021 at a minimum of 7% from 2020. From a base GDP of P18 trillion in 2020, a 7% growth will bring us up to P19.2 trillion in 2021, just slightly below the 2019 GDP. Another 7% growth in 2022 will bring us back to the 2019 GDP of over P20 trillion. By this time, the vaccines for COVID will already be widely available and 65% of the Filipinos have been vaccinated. And our neighboring countries and trade partners will be in varying stages of economic recovery.

In all likelihood the economic recovery will be broad based with most sectors growing. Agriculture and digital services would probably grow faster than historical data. Tourism, exports, BPO, and OFW remittances will grow faster as multi-lateral economic cooperation gets traction if the US and China gets their act together. 2021 will be a growth year but 2022 will the full recovery year. To take advantage of this recovery, companies should gear up and prepare human and financial resources in 2021 for the strong recovery in 2022. It would take a very bad government and politicians to abort this recovery, so we should continue monitoring our government officials and elect good leaders in 2022.