‘Long-term growth prospects remain’

by Czeriza Valencia (The Philippine Star), 13 Aug 2020

MANILA, Philippines — The economy is expected to see a sharp contraction of between eight and nine percent this year amid the disruption caused by the pandemic, but its long-term growth prospects remain, the investment banking arm of the Metrobank Group said.

In a briefing yesterday, executives of First Metro Investment Corp. (FMIC) and economists at the University of Asia and the Pacific (UA&P) said while recovery will be slow and difficult for the remainder of the year amid the continued rise in COVID-19 cases, the economy is strong enough to withstand the pandemic headwinds.

“We have gone through so many crises in the past and we have shown, time and again, our resilience as a country in overcoming the toughest of crises. The difference this time is that we are coming from a stronger position,” said newly appointed FMIC president Jose Patricio Dumlao.

He cited the country’s sound macroeconomic fundamentals, stable investment ratings, adequate capitalization of the banking industry, and the sufficient fiscal buffer provided by the historic low debt-to-GDP ratio at the onset of the pandemic.

“Uncertainty remains and we are not downplaying the unprecedented effects of this crisis, but we are confident of our country’s ability to bounce back,” said Dumlao.

UA&P economist Bernardo Villegas said while forecasts in the next 12 to 18 months will remain bleak, reflecting the uncertainty of the pandemic, the country continues to have long-term prospects for growth.

Villegas cited the presence of a young and educated population, the increased dynamism of Asia and Pacific, the shift from low-middle income to upper-middle income status, the infrastructure buildup, and the faster growth of regions outside the National Capital Region.

He noted, however, that realizing long-term growth prospects would still depend on ensuring the safety of the population and return of consumer confidence.

Changing consumption patterns amid the pandemic, he said, are also paving the way for sunrise industries including food and agribusiness, health and wellness, digital industry, and skills training.

Victor Abola, also an economist UA&P, said the speed of recovery in the short term will depend on restoring consumer confidence by ensuring the safety of the public from contagion as well as ensuring the continuity of supply chains and adaptation of business models to cope with the challenges posed by the health crisis.

With still diminished demand, inflation can be expected to remain muted at 2.5 percent this year, well within the government’s revised outlook of 1.75 percent to 2.75 percent this year.

Abola said that while recovery may not be possible this year, the contraction may be slower in the second half en route to recovery next year.

“I don’t think there will be a recovery this year. Third quarter is still going to be negative and fourth quarter will be a much smaller negative, could be positive depending on how firms and people respond to the opening of the economy,” Abola said.

He also noted that compared with other countries, the death rate in the country from the pandemic is lower, making it more likely that more people recover and “return to a good level of economic activity.”

Cristina Ulang, FMIC vice president and head of research said moving forward, hopes of recovery are threatened by succeeding waves of infection and return to severe community quarantine, sharper fall in remittances sent by overseas Filipino workers, failure to recover from high unemployment, and delay in the passage of the economic stimulus bills in Congress.

Remittances from overseas Filipino workers are already expected to decline by eight to 12 percent this year, said FMIC.

Congress, meanwhile, has vowed to pass economic stimulus measures this month.

On the external front, a deeper than expected global recession and escalation of trade tensions between China and the US will affect recovery.