Pre-pandemic GDP to return slightly earlier, but still lags rest

by Ian Nicolas Cigaral (Philstar.com), 16 Mar 2021

MANILA, Philippines — The Philippines’ return to pre-pandemic level is likely to come 3 months earlier next year, but growth that would make that happen will do little to salvage the country from being Asia Pacific’s laggard.

From fourth quarter of 2022, Moody’s Analytics now sees the local economy recouping all pandemic losses by third quarter of the same year, according to a new report released Tuesday. A recovery means gross domestic product (GDP) is at its end-2019 level.

Philippines eyes ambitious growth return after record collapse

The slightly earlier turnaround is backed by faster growth this year and the next. GDP is seen to expand 6.5% year-on-year in 2021, up from the initial 4.5% seen last January. For 2022, 7.2% growth was penciled in, faster than 6.5% originally.

Philippines’ growth, if realized, will be faster than most its Asia Pacific peers, but it also masks a bigger damage the economy suffered from the health crisis. That means that even if GDP expands larger at home, it would be partly a result of a bigger need to catch up in the region.

On top of that, Steven Cochrane, Asia Pacific economist at Moody’s Analytics, said Philippines also have a low base to work on its favor, which means expansion will inevitably be quicker with so much gains forgone last year. A similar case was noted for India.

“The Philippines has multiple factors working to slow its pace of recovery. It is coming out of a very deep hole, as it languished under quarantine orders for much of last year,” Steven Cochrane, Asia-Pacific economist at Moody’s Analytics, wrote.

“It continues to struggle to contain COVID-19, its fiscal policy response was quite limited, it has not yet developed an effective delivery system for vaccinations across its archipelago, and rising food prices limit the role of consumer spending to support the local economy,” Cochrane explained.

Herd immunity only by 2023

Already, Duterte administration’s economic managers are mulling a revision of growth targets set at 6.5-7.5% this year, and a more ambitious 8-10% in 2022— goals adopted last year against the backdrop of optimism lockdowns are relaxed further by March.

But that did not happen, and in fact easing of restrictions has taken a step back this week after COVID-19 cases spiked in Metro Manila, responsible for 32% of GDP. Cochrane said there is little evidence curfews and liquor bans would work to stop cases from rising, while mass vaccinations are only to start June.

“We cannot be sure that the spread of COVID-19 can be curtailed until vaccinations are more widely available because the quarantines in Metro Manila have not been completely effective,” he said in an email.

Hence, herd immunity against COVID-19 is unlikely in the Philippines until 2023, while much of the region, including China, will reach that point a year earlier, Moody’s Analytics said.

That would ultimately delay restoring pandemic GDP losses. Among economies assessed by Moody’s Analytics, China has already recovered to pre-pandemic point in June last year, followed the next quarter by Vietnam, Taiwan and New Zealand— countries with enviable pandemic responses. India was next, having fully recovered by the closing of 2020.

For this year, South Korea, Australia, Indonesia, and the US are all projected to lead the return to pre-pandemic level in the second quarter. Hong Kong and Japan in the third quarter, capped off by Singapore in the fourth quarter.

For next year, the Philippines is only coming behind Thailand and Malaysia in terms of recovery.

Overall, Cochrane said there are brighter prospects for Asia Pacific this year. “There are near-term risks, however, to this optimistic outlook if the pace of vaccination does not accelerate and if movement restriction are eased too early before there is broad immunity,” he said.