25 June 2021 – S&P further lowers Philippines GDP projection

(The Philippine Star), 25 Jun 2021

MANILA, Philippines — S&P Global Ratings has lowered anew its 2021 gross domestic product (GDP) growth forecast for the Philippines to six percent as the reimposition of strict lockdowns further restricted economic activity.

Last March, the debt watcher slashed the growth forecast from its original peg of 9.6 percent to 7.9 percent the most optimistic among other think tanks and research houses.

The latest forecast, while still among the highest, is now aligned with the revised six to seven percent GDP growth penned by economic managers through the Development Budget Coordination Committee (DBCC).

“Since our last forecast, COVID-19 cases in the Philippines shot up to a daily rate far above what we saw last year and remain very high despite some recent easing,” S&P said in its latest Asia Pacific economic outlook.

Metro Manila and four adjoining provinces were placed under strict lockdown anew from the end of March until the middle of June as COVID-19 cases soared.

The projected growth of the Philippines is faster than Taiwan’s 5.6 percent, Australia’s 4.9 percent, New Zealand’s 4.6 percent, Indonesia’s 4.4 percent, Malaysia’s 4.1 percent, South Korea’s four percent, Thailand’s 2.8 percent and Japan’s 2.5 percent.

Economies with faster projected growth are India with 9.5 percent, China with 8.3 percent, Vietnam with 7.3 percent and Hong Kong with 6.5 percent.

“The country reinstated strict lockdowns around the capital and neighboring regions, and even as these are being eased, mobility remains very low. The vaccination effort is picking up but remains slow,” S&P said.

According to S&P, a good chunk of the substantial base effects expected to boost domestic demand growth have likely been diminished.

The credit rating agency, however, has noted an improvement in the export sector with the gradual recovery of trade amid the global bounceback from the pandemic-induced recession.

“Nonetheless, after a weak start to the year, exports are growing at a very high clip once again, suggesting that external demand remains strong and will provide a temporary boost to external balances,” S&P said.

The debt watcher also sees inflation accelerating to 4.5 percent this year from 2.6 percent last year before easing to 2.2 percent in 2022 and 2023.

“Meanwhile, we continue to see inflation as transitory, driven by base effects in oil prices and a sharp one-off supply-led spike in food prices earlier in the year. As such, we continue to see rate hikes as unlikely in 2021,” S&P said.

S&P added the Bangko Sentral ng Pilipinas (BSP) would likely hike interest rates by 25 basis points in 2022, 50 basis points in 2023, and 25 basis points in 2024 from an all-time low of two percent.

“Uncertainties around the extent and duration of low public mobility due to the pandemic will continue to be the primary concern for growth. There is also the risk of higher interest rates globally, which could spill over into financing costs for domestic firms, further eating into the domestic demand recovery,” it said.