Bank sees 4.5% growth this year as quarantine measures clobber economy
The Asian Development Bank (ADB) has downgraded its 2021 Philippine economic growth forecast, taking into account the impact of more stringent quarantine measures on the economy.
In the Asian Development Outlook (ADO) 2021 report released on Wednesday, the ADB said the Philippine economy is projected to grow by 4.5 percent this year, down from the earlier 6.5 percent forecast.
“This forecast of at least 4.5 percent includes the imposition of enhanced community quarantine and the modified one. It also factored in the delays in the reopening of the economy,” said ADB Philippines Country Director Kelly Bird in a virtual briefing.
ADB’s latest forecast falls below the 6.5- to 7.5-percent government target.
It is also lower than the 6.9 percent and 5.5 percent forecast of the International Monetary Fund and the World Bank, but a turnaround from the 9.6-percent contraction last year.
Bird, however, pointed out that the 4.5 percent is a “floor” projection and economic growth for 2021 could be higher.
“In this case, we felt that it’s better to introduce this concept about the minimum growth rate that we think we will achieve this year, which is 4.5 percent. And so, we are 95-percent confident that growth will go 4.5 percent or higher,” said Bird.
“There are upside and downside risks and it’s really about the road out of the vaccination program. The downside of this of course is that, you know, we’re experiencing global shortages of vaccines, and these could delay the Philippines’ national vaccine rollout. This is not unique to the Philippines, but a lot of other developing member-countries. Middle income countries are experiencing the same problem.
Bird said the other downside risk is the Mandanas ruling, which comes into effect next year, where the national government is required to transfer significant amounts of revenues to the local governments, which Bird said, may affect the implementation of some public programs.
According to the report, the growth for this year will be underpinned by public spending on infrastructure and social assistance; better progress in the vaccination drive for the coronavirus disease 2019 that will help restore consumer and business confidence; and a steady recovery in the global economy.
“Priority should be given to addressing the scarring effects of the pandemic on private sector employment. Programs supporting workers and firms impacted by labor market adjustments and reforms to boost productivity growth and investment will help counter the negative effects of the pandemic on employment over the medium term,” said Bird.
Uncertainties over how the pandemic will unfold globally and domestically can, however, pose risks to growth prospects.
ADB said the government’s expansionary fiscal program and accommodative monetary policy will put the economy on a recovery path by the second half of 2021. Meanwhile, plans to strengthen labor market programs and assist in the recovery of sectors badly affected by the pandemic, including agriculture and tourism, will further support a pick up in the economy.
Inflation is forecast to rise to 4.1 percent in 2021 due to rising global commodity prices and other supply-side factors such as the African swine fever, which has resulted in disruptions to the pork supply. Inflation is expected to ease to 3.5 percent in 2022 as the government takes measures to address supply-side pressures.
The current account surplus is forecast to narrow to 2.5 percent of gross domestic product in 2021 and 1.8 percent in 2022.
Merchandise exports are expected to increase with the rise in global trade, as imports, especially capital goods, rebound to support public infrastructure development.