Fitch Solutions, a unit of the Fitch Group, said over the weekend it expects the Philippine economy to rebound this year with a growth of 7.6 percent from a record-low 9.5-percent slump last year amid the prolonged impact of the COVID-19 pandemic.
Fitch Solutions said in a report that household consumption would remain key to the economic rebound, with a recovery in gross capital formation dependent on stronger domestic demand.
“Risks were tilted heavily to the downside, with the Philippines highly vulnerable to another tightening of domestic restrictions to curb domestic COVID-19 outbreaks,” it said.
“The Philippines is set for only a partial economic recovery in 2021, as activity remains capped by continued headwinds from the COVID-19 pandemic,” it said.
It said that with COVID-19 cases averaging over 1,700 a day as of Jan. 26 and the threat of more contagious strains, authorities would likely have to maintain some elements of mobility restrictions throughout the year.
“As such, we at Fitch Solutions forecast the economy to only partially recover its losses in 2020, with our forecast for growth at just 7.6 percent in 2021,” Fitch Solutions said.
It said expectations for recovery to pre-pandemic levels by the first half was predicated on the ability of Philippine authorities to ease domestic lockdown restrictions through 2021 and a gradual normalization of activity.
Private consumption and gross capital formation are expected to grow 5.5 percent and 25.1 percent in 2021, from average contractions of 7.9 percent and 35.4 percent in 2020.
“The government will continue its accommodative fiscal stance to aid the recovery in domestic activity while an upturn in global trade will offer some boost to the economy, albeit with neither enough to offset disruptions to private domestic demand. The ability of the government to provide stimulus also somewhat rests on its containment of the pandemic,” Fitch Solutions said.
Fitch Solutions also said there remained risks of the funds for development projects being reallocated towards fighting another surge in COVID-19 cases.
“For now, we forecast government consumption to rise 6.0 percent in 2021, slowing from a 9.8-percent increase in 2020,” it said.
The Philippine Statistics Authority reported last week that the economy contracted by 9.5 percent in 2020, the worst on record since the government started collecting GDP data in 1946, a year after the
Second World War ended.
The decline surpassed the 7-percent decline posted in the latter part of the Marcos administration in 1984. Factors that contributed to the decline were the prolonged COVID-19 pandemic and a string of natural disasters such as the Taal Volcano eruption in January and strong typhoons in the fourth quarter.
Data showed, however, that the fourth-quarter decline of 8.3 percent was an improvement from the 11.4-percent contraction in the third quarter.