PH economy to rebound in 2021
THE Philippine economy is projected to recover and grow by 8 to 9 percent in 2021, First Metro Investment Corp. (FMIC) and the University of Asia and Pacific (UA&P) said.
“With a huge $ 30- billion stimulus plan in the works and normalization of business operations, we project a notable rebound in GDP (gross development product) growth in 2021 by 8 percent to 9 percent,” FMIC and UA&P said in the May issue of The Market Call.
The country’s GDP contracted by 0.2 percent in the first quarter of the year due to the combined effects of the Taal volcano eruption and the effects of the enhanced community quarantine ( ECQ) caused by the coronavirus disease 2019 ( Covid- 19) pandemic.
Economic managers earlier disclosed that the Philippine economy is projected to contract by 2.0 to 3.4 percent this year as the potential impact of the Covid-19 crisis on GDP could reach P2.0 trillion.
The forecast for this year will be the fastest decline since the -6.5 percent in 1985. It is also a turnaround from the 6-percent economic growth recorded last year.
“With the ECQ of Metro Manila lasting for two months from April to May, we expect a more drastic GDP slowdown in Q2 ( second quarter), but its relaxation for most of the country should push the economy to expand at a faster pace in H2 (second half), albeit much below the above 6-percent norm of the recent years,” FMIC and UA&P said.
“Consumers have had to makedo with spending on basic necessities given the lack of income due to the lockdowns or layoffs as firms face an uncertain future, and so their spending will likely fall in Q2,” they added.
The report, however, said that demand will wane, this may not result in very low inflation rates due to limitations on the supply side.
“Thus, we don’t expect inflation to go below 2 percent year-on-year in Q2,” said FMIC and UA&P.
Monetary policy meanwhile is also seen to remain easy as domestic interest rates have not dropped in sync with the United States. Another policy cut, however, is seen in the second half of the year.
“While we saw a further 50 bps (basis points) policy rate slash on April 17, 2020 to bring it to 2.75 percent, we still see a further 25 bps cut likely in early H2. This means that we expect policy rates to be reduced further to 2.5 percent,” FMIC and UA&P said.
The report noted that since firms have focused on a post-Covid-19 scenario, which may require less employees or more outsourcing, and less spending on hardware and more on their digital transformation, the government would rely on spending for both subsidies and infrastructure to restart the economy.