Sunny and bright, or cloudy and overcast?
The Philippines, which underperformed in the region with a GDP contraction of -9.5 percent for 2020, is expected to recover the pre-Covid economic output only by the second half of 2022
When we plan for a journey, prudence dictates that we consider the weather outlook at about the time of our trip to ensure a safe and hassle-free travel. In the same token, in contemplating making an investment, a critical first-step is to assess the overall outlook of the market we intend to jump into.
And so, what’s the weather like for the Philippine capital markets?
Over the past weeks, there have been a number of webinars sponsored by leading business organizations, namely the (Financial Executives Institute of the Philippines and Management Association of the Philippines, on this very same topic. The administration’s economic managers have been at the forefront of assuring the business community that, although we have been battered by various calamities — volcano eruptions, typhoons, floods and, of course, the dreaded coronavirus — resulting in record drops in our gross domestic product (GDP) growth rates and steep increases in unemployment, our country remains resilient and will bounce back in due course as the government’s vaccination rollout program gets going, and the growing confidence of the people to resume normal economic activities begins to gain more traction, nudged along by an expansive monetary policy.
Also, the economic levers needed to fuel industry are benign, with interest rates at record lows and a manageable inflation rate projected for the foreseeable future. Furthermore, the government’s proposed legislative stimulus packages have finally been signed into law.
All in all, the weather forecast of our economic managers seems to be an optimistic all-systems go scenario.
The 2021 budget of P4.5 trillion with about P82.5 billion earmarked for the vaccination program is done. So are the Corporate Recovery and Tax Incentives for Enterprises, a tax package that reduces corporate income tax rates, prolongs and encourages, albeit selective, tax incentive holidays, and Financial Institutions Strategic Transfer, an enabling law to assist the banking sector’s anticipated surge in non-performing loans.
Only the Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery bill remains pending, a law that will create a special holding company designed to infuse capital in strategically situated companies adversely affected by Covid.
All in all, the weather forecast of our economic managers seems to be an optimistic all-systems go scenario.
But what is the call of the international economists? In a recent webinar, Dr. Johanna Chua, managing director and head of Asia Economic & Market Analysis Citigroup, had a few not-as-rosy expectations.
The Philippines, which underperformed in the region with a GDP contraction of -9.5 percent for 2020, is expected to recover the pre-Covid economic output only by the second half of 2022, the slowest among our peers, attributable to our having the most stringent lockdown in the region. Adding to this unfortunate mesh is the likelihood of developed countries getting the lion’s share of the West’s vaccines, rendering the emerging countries in short supply. We will likely have access to ample Chinese vaccines, but perhaps not quite the preferred choice of most.
This combination of tight supply of preferred Western-made vaccines and lack of confidence in the readily available Chinese-made vaccines could be harbingers of a slow vaccination rollout for us, hindering our recovery. (To be continued)