Philippines seen contracting by 9.5% this year

MANILA, Philippines — New York-based GlobalSource Partners expects a deeper economic contraction for the Philippines this year, before moving on a slow ascent with the pre-pandemic level only seen to be achieved by late 2022.

In a  report, GlobalSource said it now forecasts the domestic economy to contract by 9.5 percent, worse than its previous estimate of 8.5 percent.

While it expects a bounce back starting 2021, the market intelligence firm said the economy cannot be expected to return to its pre-COVID-19 level by next year, with the gross domestic product anticipated to grow by only five percent.

Its 2020 projection is on the lower band of the government’s  contraction forecast of 8.5 to 9.5 percent, while the 2021 figure is lower than the 6.5 to 7.5 percent contraction range estimated by the Development Budget Coordination Committee.

“Early hopes of a quick rebound in 2021 have since been dashed by business losses and shutdowns, high unemployment and continuing spread of the coronavirus that has made it impossible to completely relax quarantine and distancing rules,” GlobalSource said.

Its estimate is also informed by a mild pickup in activity thus far, based on Google mobility data and anecdotally, energy sales and foot traffic in malls.

The report, published by former finance undersecretary Romeo Bernardo and Christine Tang, country analysts of GlobalSource, stated that the outlook assigns more weight to downside risks rather than the “green shoots.”

“The former basically stems from the fact that the country has yet to clear the virus containment hurdle and confidence in government’s disease management capability is still low due mainly to weak contact tracing capabilities,” GlobalSource said.

“Moreover, given expected dragged-out vaccine distribution timetables, the economy will still need to live with the coronavirus, possibly for two years or more, with increased mobility risking rising infections and a return to tighter restrictions,” it said.

Hence, GlobalSource said physical distancing policies would likely remain in place, implying continuing constraints in public transportation.

“The public policy is expected to be accompanied by voluntary social distancing on the part of individuals fearful of getting infected and gloomy consumer and business sentiments,” the research company said.

GlobalSource noted that while both monetary and fiscal policies are working to prop up demand, the former appears to be “pushing on a string” due to banks’ risk aversion.

Spending stimulus on the fiscal side, meanwhile, may continue to be hampered by slow releases and project execution, it said.

“Overall, our latest growth outlook translates into a return to the 2019 level of activity only by late 2022, a grim prospect that may deepen micro level scarring from the pandemic, especially on human capital,” GlobalSource said.

“We worry too that to the extent that the current recession causes investments to stall for longer periods, thereby slowing innovation and reducing labor productivity, restarting and sustaining the pre-pandemic growth rate of six to seven percent is most unlikely,” it said.