PHL expected to miss official growth targets due to extended lockdowns

PHILIPPINE ECONOMIC growth is expected to come in below the growth targets set by the government with a performance of 3.5% this year and 6.5% in 2022, due to the continued lockdowns, GlobalSource Partners said.

GlobalSource, a macroeconomic and geopolitical risk research house, said it has reduced its gross domestic product growth forecast for 2021 from 4%, while maintaining the outlook for 2022.

Think tank GlobalSource Partners Country Analysts Romeo L. Bernardo and Marie Christine Tang said their projections are less optimistic than the economic team’s 4-5% target for the year and 7-9% next year, on the assumption that the government will continue to declare periodic lockdowns over the rest of 2021.

“With the Delta variant circulating, the threshold for herd immunity a moving target, limited healthcare capacity, and dismally inadequate contact tracing, the more probable scenario for the near term is for an economy under some form of quarantine of varying stringency, unable to quickly close output gaps and return to pre-pandemic growth rates,” they said in an Aug. 28 report.

A faster vaccination rollout to prevent the collapse of the health system will support their projections, but failure to contain future waves could dim the economic outlook further.

Around 12.57% of the country’s total population has been vaccinated as of Aug. 29, according to Our World in Data. The government aims to inoculate its entire adult population this year.

Metro Manila and other parts of the country struggling with high infections were placed under enhanced community quarantine in August.

The authorities reported 14,216 new cases Wednesday, which brought the total number of active cases to 140,949. The Philippines recorded its highest one-day tally Monday with 22,366 new infections.

“Prospects for 2022 are better as more vaccines are administered and preferred western brands become more widely available assuming full regulatory approval locally,” GlobalSource Partners said.

Pent-up demand due to the prolonged crisis should also support a rebound next year, but GlobalSource said growth may not return to its pre-pandemic trend of 6.5-7% over the medium term due to economic scarring.

“The country’s potential growth had started to turn down even before COVID-19, reflecting the end of about seven years of historically higher capital accumulation and waning contribution from estimated total factor productivity (based on five-year averages),” it said.

“We expect that economic scarring resulting from the prolonged pandemic, associated with among others, losses/mismatches in labor skills, bankruptcies, rising inequality with narrower fiscal headroom to close gaps, will further lower potential growth by 1 to 1.5 ppt (percentage point),” it added.

GlobalSource Partners said reforms that will attract investment and technology transfer as well as increase competition can help bring the economy back to a higher growth track.

However, it said a return to normalcy, in which mobility and economic activity return to pre-crisis levels, will not happen until late 2022.

The situation calls for “active fiscal policy within the confines of narrower fiscal space, requiring (the government) to commit to a credible fiscal consolidation plan early on. Without these offsetting actions, the economic scarring caused by the lingering crisis will reduce medium-term growth prospects, possibly by at least 1 ppt vs. the 6-7% pre-pandemic growth rate over the previous decade,” it added.

After growing by 3.7% in the first half, the economy has to expand by at least 4.3% for the rest of the year to hit the low end of this year’s growth target. — Beatrice M. Laforga