AMRO sees 6.9% 2022 GDP growth
In 2021, the economic recovery was mainly driven by stronger investments
The Philippines is showing a remarkable pace of recovery as a regional research firm forecast the country’s gross domestic product (GDP) to grow strongly by 6.9 percent in 2022 and moderate to 6.5 percent in 2023, Singapore-based ASEAN+3 Macroeconomic Research Office (AMRO) said in a statement Wednesday.
Although AMRO said factors such as external uncertainties and headwinds heightened in early 2022, posing additional challenges to policy implementation and economic prospects, as highlighted in the 2021 Annual Consultation Report on the Philippines.
Earlier this month, the country’s interagency committee, Development Budget Coordination Committee (DBCC), recalibrated its GDP growth assumption to 6.5 to 7.5 percent this year, from a previous 7 to 8 percent target.
The report stated that in 2021, the economic recovery was mainly driven by stronger investments.
Household consumption and the recovery is expected to broaden this year, with the private sector taking the lead in driving growth on the back of continued policy support.
“Inflation picked up in the early part of the year, owing to rising oil and food prices. Given the supply disruptions from the war in Ukraine, AMRO projects the headline CPI inflation to rise to 4.4 percent in 2022 before declining to 3.8 percent in 2023,” AMRO added.
Also, AMRO said the overall balance of payments was broadly balanced in 2021, with a current account deficit of $6.9 billion, or 1.8 percent of GDP, largely offset by net inflows in the financial account.
However, the external account may face pressure in 2022 as the external environment has turned unfavorable.
Moreover, the regional research group indicated that the banking system has remained resilient amid the pandemic, owing to policy support and prudent management.
“The banking sector maintained a strong capital adequacy ratio of 16.7 percent on a solo basis as of December 2021, which is well above the minimum regulatory requirement,” the report stated.
Serious risks emerge Despite this, AMRO said there are still challenges and stumbling blocks that the country is facing, stating that given the country’s high vaccination rate, a resurgence of Covid-19 infections should not pose a major risk unless the variant is more resistant to vaccines.
Furthermore, the international organization cited the impairment of firms’ balance sheets which it said continues to pose a risk to the banking sector’s financial health although the risk is mitigated by the recovering economic activity.
Inflation picked up in the early part of the year, owing to rising oil and food prices.
Global interest rates and capital flow volatilities are likely to rise further in 2022 as the Federal Reserve continues to tighten monetary policy to contain inflation, especially if the war in Ukraine were to escalate further. The economy is well-positioned to weather the adverse impact given its strong external position, although the peso exchange rate may come under some pressure.
AMRO maintained that heightened uncertainty in the global economic and geopolitical environment amid existing risks from the pandemic in the past two years have sparked additional challenges to the government.
“Policymakers need to strike a good balance between supporting the recovery and safeguarding against risks. The broadly neutral fiscal policy stance in 2022 under the current National Budget is appropriate as the private sector recovery is expected to gain momentum and become more self-sustaining,” the group said.
Policymakers need to strike a good balance between supporting the recovery and safeguarding against risks.
The fiscal consolidation plan should enhance fiscal sustainability without jeopardizing economic recovery.
"The pace of fiscal consolidation can be expedited once the private sector recovery becomes self-sustaining, by continuing to improve the efficiency of public spending programs, while enhancing revenue collection," AMRO chief economist Hoe Ee Khor said.
"Both public and private efforts need to be synergized to mitigate the scarring effects from the pandemic and address the structural challenges to achieve a more resilient and sustainable long-term growth," Khor said.