DECLINES in the country’s economic growth are still expected to linger, even after the global health crisis is over, an international think tank said.
In a recent analysis of the Philippine economy, Oxford Economics said the local economy will experience the so-called “pandemic scarring” that will lower the country’s long-term growth.
Oxford Economics economist Sian Fenner said they estimate the “the long-run nominal neutral policy rate” of the Philippines to hit 5 percent, slashing their earlier forecast of 5.5 percent.
Oxford Economics defines long-run nominal neutral policy rate as the rate at which the economy is in equilibrium and monetary policy fully normalized.
Fenner said the recalibration of their neutral rate forecasts primarily reflects the long-term impact of the pandemic on their forecasts for potential GDP [gross domestic product] growth.
“The pandemic will have a lasting negative impact on Asia-Pacific (APAC) economies, and we forecast the Philippines to experience one of the largest permanent losses in output, with GDP levels in 2025 likely to be 8.4 percent lower than our prepandemic projections—the equivalent of 1.75 trend-years of lost growth,” Fenner said.
Fenner blamed the mismanaged number of cases in the country and the fiscal response of the government, which led to their lower long-term growth forecast of the country.
“Not only has the Philippines struggled to contain outbreaks since the pandemic took hold, the fiscal response has been meager considering the stringency of its lockdowns. This has led us to lower our investment and employment forecasts significantly,” Fenner said.
Still among fastest-growing
Despite downgrading the Philippines’s long-term growth forecasts, Fenner said Oxford Economics still expects the country to be one of the fastest growing economies in the region and globally.
“Although we expect the contribution from labor to soften over the long-term, the Philippines will continue to benefit from the so-called ‘demographic dividend’; that is the boost to growth from labor supply growing faster than the dependent population,” Fenner said.
“What’s more, a high savings rate and still very favorable returns on capital also augur well for investment, capital stock, and productivity, despite a somewhat softer outlook due to the pandemic. Productivity growth will also continue to benefit from a catch-up with the US,” the economist added.
The local economy posted a 4.2 percent contraction in the first quarter of the year. The government’s target range for full-year growth is at 6 to 7 percent.