Fitch Solutions, a unit of Fitch Group, said Monday it reduced the 2021 gross domestic product outlook for the Philippines to 5.8 percent from a previous estimate of 7.6 percent, as the challenges posed by the COVID-19 pandemic, including the slow rollout of vaccines, are expected to disrupt economic recovery.
Fitch Solutions said in a report the surge in new infections and the resulting tightening of mobility to prevent the further spread of the disease would stifle the expected bounce-back of the economy.
“The likelihood of further outbreaks in other regions remains high and given the slow vaccination rollout in the country [less than 1 percent of the population has been vaccinated as of end-March], we believe the Philippines’ recovery will continue to be hampered by the pandemic,” said Fitch Solutions which operates independently of Fitch Ratings.
“As such, we are revising down our growth outlook for the Philippines from 7.6 percent to 5.8 percent, with risks very much tilted to the downside,” it said.
According to OCTA Research, the number of COVID-19 cases was expected to continue to surge in the next couple of weeks despite the Inter-Agency Task Force for the Management of Emerging Infectious Diseases’ decision to place NCR Plus (Metro Manila, Bulacan, Cavite, Laguna and Rizal) under a strict community quarantine bubble until April 11.
Under the ECQ bubble, travel to and from Metro Manila and the four adjacent provinces was not allowed unless deemed as essential. With these restrictions, the government hopes this will result in slower increase in COVID-19 cases.
The government decided to extend the enhanced community quarantine in the ‘NCR-Plus’ bubble for another week starting April 5 to prevent the further spread of the disease.
Fitch Solutions said, however, there were some signs of a gradual recover in activity in the first quarter. It cited the Manufacturing Purchasing Managers’ Index which reached 52.5 in February, indicating a gradual improvement in activity.
“Indeed, respondents noted supportive demand dynamics and increased inventory building on a more positive outlook. This will likely reverse with the more recent lockdown measures but growth is likely to have continued on a recovery path through the quarter,” it said.
It said the Philippine economy was highly vulnerable to lockdowns given its high reliance on domestic consumption and investment, and thus growth would likely fall again until lockdown measures were eased.
Fitch Solutions said private consumption and gross fixed capital formation together accounted for 100.4 percent of GDP in 2019. As such, during the pandemic and lockdowns, the economy was one of the worst performing emerging markets in 2020, with its GDP contracting by a record 9.5 percent, the worst since the end of World War 2.
“Our expectation for a modest recovery [i.e. real GDP not returning to its pre-pandemic levels until 2022] assumed that domestic demand would gradually recover and the government’s infrastructure plans would come to fruition, resulting in a sharp increase in domestic activity,” it said.
“However, the slow vaccine rollout and recurrent difficulties in containing outbreaks look set to stall the recovery further. As such, we have revised down our annual growth outlooks for private consumption and gross fixed capital formation growth from 5.5 percent and 20.0 percent to 4.5 percent and 14.0 percent respectively, in 2021,” it said.
The World Bank also warned that the slow vaccinations because of people’s hesitancy on the vaccines and the government’s struggle to conduct large-scale inoculations could delay economic recovery and take away 1-percentage point from the potential gross domestic product growth this year.
Aaditya Mattoo, the bank’s chief economist in the Asia-Pacific Region, said in an online briefing that the Philippines might rebound this year by 5.5 percent from the record contraction of 9.5 percent in 2020.
This latest projection was lower than the 5.9 percent estimate it made in December 2020.
Mattoo said that in 2022, the Philippine economy was expected to expand by more than 6 percent.
“The big problem in the Philippines is the hesitancy or people’s skepticism about the COVID vaccines. Also, [another problem] is the [government’s] capacity to implement a large-scale vaccination,” Mattoo said.