The World Bank said Tuesday it raised its 2021 growth forecast for the Philippines to 5.3 percent from its previous estimate of 4.3 percent, following the 7.1-percent third-quarter expansion that exceeded market expectations despite the prolonged impact of the COVID-19 pandemic.
Bank senior economist Kevin Chua said in an online briefing on Philippines Economic Update titled ‘Regaining Lost Ground, Revitalizing the Filipino Workforce’ that the economic rebound gained momentum in the third quarter.
“The Philippines has, so far, faced its worst infection wave in September when the seven-day daily average reached about 21,000 cases due to the Delta variant. In response, the authorities re-imposed stringent mobility restrictions in Metro Manila and other key metropolitan areas,” Chua said.
“Nonetheless, compared with previous waves, domestic activity has been less sensitive to infections. Public containment measures constrained overall mobility less, while households and firms have learned to cope with infections and diminished mobility,” he said.
“As a result, the growth momentum was not severely hampered, and the third quarter growth surprised on the upside, exceeding market expectations,” Chua said.
The economy expanded by 4.9 percent in the first three quarters of 2021, rebounding from a 10.1-percent contraction over the same period in 2020, and near the government’s growth target range of 4 percent to 5 percent this year.
Chua said although partially driven by base effects, the growth expansion reflected an increase in economic activity despite the implementation of several lockdowns.
“Growth was supported by the industry sector, driven by double-digit growth in manufacturing and robust public construction activity. The services sector posted a more moderate expansion as some key services were subdued by mobility restriction measures,” he said.
Chua expects GDP growth to expand further by 5.9 percent in 2022 and 5.7 percent in 2023, for a two-year average of 5.8 percent.
He said the global economic recovery strengthened the country’s exports, although services trade remained weak. He said the fiscal stance remained supportive of economic recovery, but the policy space was narrowing.
The bank expects government spending on infrastructure to buoy growth, aided by the steady progress in vaccination leading to greater people mobility and the revival of businesses. Barring a new uptick in COVID-19 cases, household consumption is projected to recover, anchored on rising remittances and improving incomes as more people regain or find new jobs.
Ndiame Diop, World Bank country director for Brunei, Malaysia, the Philippines and Thailand, said in the same briefing that the new Omicron variant of COVID-19 “has added a layer of uncertainty but economic reopening, along with progress in vaccination, is clearly strengthening domestic dynamism and market confidence.”
“As the recovery gains traction, it will be important to enhance private sector participation in the recovery by deepening current efforts to make the country’s business environment favorable to job creation while upskilling the workers so that they can benefit from new or emerging job opportunities,” Diop said.
Diop said the reported waning vaccine efficacy might complicate business decisions in the future.
The Philippines underwent two surges of COVID-19 infections this year, first in March-April and in August-September due to the more infectious Delta variant. In both instances, the authorities reinstated strict mobility restrictions in Metro Manila and nearby provinces, and key metropolitan areas.
Bank officials said, however, that the recent surge and mobility restrictions had not severely hampered economic activity.
“Speeding up vaccination especially in areas outside the National Capital Region and sustaining the observance of health protocols including masking and maintaining social distancing are measures that remain important as the country navigates the challenges of reviving the economy,” Chua said.
Chua said social protection measures, including the country’s cash transfer programs, remained important measures to mitigate the adverse impact of the pandemic on livelihoods, health, and education, especially among poor families.