THE Philippine economy is still poised to recover this year despite the Omicron variant of Covid-19 and the uncertainties brought by the change in administration, according to the First Metro Investment Corp. (FMIC)-University of Asia and the Pacific (UA&P) Capital Markets Research.
In a briefing on Tuesday, UA&P economist Victor A. Abola said GDP growth this year is expected to reach 6 to 7 percent. Full-year GDP growth in 2021, which will be officially released toward the end of the month, is expected to average 5.1 percent.
The Philippines is also expected to retain its credit rating; the government still has some fiscal and monetary space; and inflation is expected to slow with oil forecasted to hit $60 per barrel toward the end of 2022.
“The [elections] would be the bigger risk [for the economy compared to rising Covid-19 cases]. I mentioned that the elections have to be credible, more than anything. It doesn’t matter who is elected. It’s more whether the votes are counted properly and that’s being addressed by a number of civic groups so we can only hope that it really happens that way, that elections would be properly conducted,” Abola, however, said in a briefing.
The elections, he said, could cause GDP in the second semester to slow. However, Abola said this is normal during Presidential election years.
“Due to heavy election spending and [the scenario] that omicron fades in weeks not months, there will be a slight reduction in GDP growth, but still above 7 percent,” Abola said in an e-mail.
Abola said other caveats to the economy’s growth this year also include Covid-19 and the increase in poverty. This, however, can be addressed as the number of jobs continues to increase.
He said this is especially observed in the November Labor Force Survey (LFS) which showed the number of employed Filipinos reached 43.6 million, higher than the peak of 43.1 million in October 2019.
Abola added that it was also a good sign that the Manufacturing sector has added 337,000 jobs since October 2020. This augurs well for domestic spending and addressing poverty.
Credit rating
Meanwhile, Abola sees a low possibility that the country will see its credit rating downgraded, noting, as basis for such view, the country’s high Gross International Reserves and the fact that its external debt to GDP ratio remains low.
Based on a recent analysis of The Economist, the Philippines has one of the lowest external debts in the world. The Economist ranked the Philippines 5th best in the world in terms of external debt.
Abola added that the economy is getting a much-needed boost from industries like the business-process outsourcing (BPO), which is branching out.
In 2020, the BPO sector posted earnings of around $26.7 billion. Abola said the IT and Business Process Association of the Philippines (ITBPAP) earlier projected that its earnings will increase by 8 percent in 2021.
This, Abola said, would amount to projected earnings of $30 billion. He said the BPO sector is no longer limited to call centers but has branched out to include sectors such as HMOs, data and analytics, and insurance.
“Last year the Philippine economy rebounded from a deep recession, registering 4.9-percent growth in the first three quarters of the year. This growth momentum likely spilled over in the fourth quarter given further economic reopening and easing mobility restrictions,” First Metro President Jose Patricio Dumlao said in a statement.
“Notwithstanding the ongoing pandemic, and Omicron sparking the third wave of infections, we are still optimistic that Philippine growth will further accelerate and get back on its trajectory of 6-7 percent in 2022,” he added.
The local think tank also said overseas Filipino worker (OFW) remittances, which grew by 5.3 percent from January to October 2021, will likely grow by at least 4 percent this year.
Inflation remains transitory as it is driven by higher crude oil and food prices. It is, however, anticipated to decelerate faster to 3.5-3.7 percent in 2022. With lower inflation rate, the BSP is expected to keep policy rates unchanged.
The peso will continue to depreciate slightly due to the strength of the US dollar and balance of trade deficit. It is projected to hover at P51 to P52 vs the US dollar.
Image credits: Nonie Reyes