Fitch unit cuts PHL’S ’21 growth forecast

FITCH Solutions, the research arm of the Fitch Group, slashed its growth forecast of the Philippine economy for the second time this year, saying the economy will struggle to recover as the country still grapples with thousands of new Covid-19 cases daily.

e international think tank cut its growth forecast of the Philippines to 5.3 percent, down from the 5.8-percent gross domestic product (GDP) growth projection it announced earlier this year.

Just last month, Fitch Solutions already cut its previous forecast of 7.6 percent down to 5.8 percent.

e new forecast is more than a percentage point below the floor of the government’s target range of 6.5 to 7.5 percent.

“We at Fitch Solutions believe the Philippines economy will continue to struggle amid its difficulties controlling the spread of Covid-19 and normalizing economic activity.

e Philippines has been battling a rampant third wave of Covid-19 cases, which looks set to delay the economic recovery further,” the think tank said in a research note published on Wednesday.

Fitch Solutions said the renewed lockdowns to curb this will weigh substantially on economic activity in the second quarter of the year and that the retightening of travel, movement and operation in key cities in the country proves that it is “highly unlikely” that the economy will improve in the next quarter.

“Indeed, with a slow vaccine rollout—1.8 percent of the population have received a single vaccine dose as of 9 May—the economy will continue to be hamstrung by the pandemic,” the think tank added.

Due to the country’s significant dependence on domestic activity for growth, Fitch Solutions said the economy is highly vulnerable to movement restrictions.

e research firm said they now forecast domestic consumption to grow by 4 percent, revised downward from the 4.5-percent projection earlier.

“Constraints on domestic activity are likely to be in place through the rest of 2021, but given the recent outbreak, we

now expect these to be more stringent than we had previously assumed,” Fitch Solutions.

Just this week, the Philippine Statistics Authority (PSA) reported that the country’s economy contracted by 4.5, the fifth consecutive quarter that the local GDP is in the negative growth territory.

Remittances

REMITTANCES, meanwhile, are expected to continue to support the country as advanced economies start to recover this year.

“One support factor for households is the likely rebound in remittance flows from abroad...a strong recovery in the US and a pick-up in international trade will bolster remittance inflows, with the US accounting for around 40 percent of remittances and sea-based employment around 22 percent,” Fitch Solutions said.

Latest data from the Bangko Sentral ng Pilipinas (BSP) showed that cash remittances to the Philippines hit a total of $2.48 billion in February. is is 5.1 percent more than the remittances sent to the country in February 2020 at $2.36 billion.

e BSP said the growth in cash remittances for the first two months of the year largely emanated from Filipinos in the United States, Malaysia, and Singapore.

“We also forecast government consumption growth of 7 percent to support domestic demand, offsetting some of the weakness in the private sector,” Fitch Solutions said.