Singapore-based ASEAN+3 Macroeconomic Research Office said Wednesday the Philippine economy is poised to withstand the risks from the global front because of its strong external position.
AMRO’s assessments are highlighted in the 2021 Annual Consultation Report on the Philippines published Wednesday.
The report said the economic recovery from the COVID-19 pandemic continued to gain traction and that the country’s gross domestic product would grow strongly by 6.9 percent in 2022, before moderating to 6.5 percent in 2023.
It confirmed that external uncertainties and headwinds heightened in early 2022, posing additional challenges to policy implementation and economic prospects.
“Global interest rates and capital flow volatilities are likely to rise further in 2022 as the Federal Reserve continues to tighten monetary policy to contain inflation, especially if the war in Ukraine were to escalate further,” AMRO said.
“The Philippine economy is well-positioned to weather the adverse impact given its strong external position, although the peso exchange rate may come under some pressure,” it said.
AMRO said the economic recovery in 2021 was driven by stronger investments and household consumption. The recovery is expected to broaden this year, with the private sector taking the lead in driving growth on the back of continued policy support.
Inflation picked up in the early part of the year, owing to rising oil and food prices. AMRO said given the supply disruptions from the war in Ukraine, the headline inflation in the Philippines would rise to 4.4 percent in 2022 before declining to 3.8 percent in 2023.
“The overall balance of payments was broadly balanced in 2021, with a current account deficit of $6.9 billion, or 1.8 percent of GDP, largely offset by net inflows in the financial account. However, the external account could face some pressure in 2022 as the external environment has become more unfavorable,” it said.
The banking system remained resilient amid the pandemic, owing to policy support and prudent management. The banking sector maintained a strong capital adequacy ratio of 16.7 percent on a solo basis as of December 2021, above the minimum regulatory requirement.
“The recovery is clouded by risks and challenges. Given the high vaccination rate, a resurgence of COVID-19 infections should not pose a major risk unless the variant is more resistant to vaccines,” it said.
It said the impairment of firms’ balance sheets continued to pose a risk to the banking sector’s financial health although the risk was mitigated by the recovering economic activity.
“The heightened uncertainty in the global economic and geopolitical environment amid existing risks from the pandemic in the past two years posed additional challenges to the government. Policymakers need to strike a good balance between supporting the recovery and safeguarding against risks,” it said.
It said the broadly neutral fiscal policy stance in 2022 under the national budget is appropriate as the private sector recovery is expected to gain momentum and become more self-sustaining.
“The fiscal consolidation plan should enhance fiscal sustainability without jeopardizing economic recovery. The pace of fiscal consolidation can be expedited once the private sector recovery becomes self-sustaining, by continuing to improve the efficiency of public spending programs, while enhancing revenue collection,” it said.
AMRO said both public and private efforts should be synergized to mitigate the scarring effects from the pandemic and address the structural challenges to achieve a more resilient and sustainable long-term growth.