Philippine economy to grow 6.5% in 2022, 2023 — AMRO
The ASEAN+3 Macroeconomic Research Office (AMRO) estimates that the Philippine economy will grow by 6.5% this year and next due to the loosening of mobility restrictions.
In a statement, the AMRO said it made the preliminary assessment that the “economic recovery in the Philippines is firmly on track” after its virtual annual consultation with the Philippine authorities from February 18 to March 8.
The mission was led by AMRO lead economist Dr. Siu Fung Yiu along with AMRO director Toshinori Doi and chief economist Dr. Hoe Ee Khor.
“The Philippines economy is expected to recover robustly by 6.5% in both 2022 and 2023,” said Yiu.
“Continued fiscal support and a high vaccination rate will help keep the economy relatively open and sustain the recovery momentum."
The AMRO said its assessment of the Philippines focused on the development of the COVID-19 pandemic and the country’s vaccination progress, the status of economic recovery, key risks and challenges, and policy responses to ensure a robust recovery in the short-term while minimizing the lasting impact of the pandemic in the long term.
The Philippine economy grew 5.6% in 2021 after contracting by 9.6% in 2020, mainly driven by public expenditure, a rebound in economic activity from a low base in 2020, and robust growth in exports of goods and professional services.
For 2022, the AMRO said public expenditure will continue to be the main driver of growth, with private sector recovery gaining momentum with the reopening of the economy, supported by better economic prospects, improving confidence, and favorable external demand.
Inflation
The think tank said the country’s headline inflation may decline to 3.7% in 2022 and 3.3% in 2023, from a high of 3.9% recorded in 2021.
However, it said that a further spike up in global oil prices due to geopolitical conflicts poses an upside risk to the inflation outlook in 2022.
According to AMRO, the labor market has rebounded strongly, but unemployment remains high and job quality has deteriorated.
Risks, challenges
The AMRO said a potential resurgence of COVID-19 infections remains a key risk to the recovery and the impairment of firms’ balance sheets continues to pose a risk to the banking sector’s soundness in the short term.
However, it added that the significance of these two risks may have abated due to a higher vaccination rate and recovering economic activity.
The AMRO said that global interest rates and capital flow volatilities are set to rise in 2022 as global financial conditions tighten.
“The Philippine economy is well positioned to weather the adverse impact, but the peso exchange rate may come under some pressure,” it said.
“Some lasting damages caused by the pandemic have become clearer, the most adverse of which is on human capital, raising the urgency to take action to build resilient, sustainable, and inclusive long-term growth."
The think tank said that the overall fiscal policy stance is assessed to be broadly neutral in 2022 under the current national budget.
“This policy stance is appropriate as the private sector recovery is expected to become more self-sustaining going forward,” it said.
Recommendations
The AMRO recommended that a fiscal consolidation plan “should enhance fiscal sustainability without jeopardizing economic recovery.”
It said that a gradual reduction of the fiscal deficit is deemed appropriate as the recovery is still gaining traction in the near term.
“However, the pace of fiscal consolidation should be expedited once the private sector growth has become self-sustaining. The authorities should also continue to improve the efficiency of public spending programs, while enhancing revenue collection,” the think tank said.
Likewise, the AMRO recommended that the Philippine central bank continue its accommodative monetary policy in 2022 to support the recovery and consider tapering its policy stance as the recovery gains traction and the output gap narrows.
“The central bank’s key relief measures are still in place to ensure continued support toward recovery of businesses, households, and the economy as a whole,” it said.
The AMRO also said that the government needs to leverage both public and private efforts to mitigate the scarring effects of the pandemic and resolve structural challenges for more resilient and sustainable long-term growth.
“The country’s legislative efforts, including the passage of amendments to the Retail Trade Liberalization Act, the Public Service Act, and the Foreign Investments Act are welcome,” it said. — VBL, GMA News