The Philippine economy may post a slower year-on-year growth in the second quarter amid base effects, as the economy posted a 12 percent expansion the same time last year.
“Because of the high base effect, we may have a lower year-on-year figure, compared with the 8.3 percent in the first quarter, but… it’s just because of the high-base effect,” Andrew Tsang, Asean+3 Macroeconomic Research Office (AMRO) economist, said in a virtual briefing yesterday.
“So we may see a low number in the year-on-year growth, but we can see the still strong quarter-on-quarter growth,” he added.
In the second quarter of 2021, the economy recorded the highest gross domestic product growth since the fourth quarter of 1998 as it was coming from a low base in the previous year, then at the peak of the coronavirus disease 2019 (COVID-19) induced lockdown measures.
The Philippines posted a 17 percent contraction in the second quarter of 2020 as tight quarantine restrictions were in place, with majority of the economy practically at a standstill.
AMRO has earlier upgraded its growth forecast for the Philippines this year, expecting the economy to post the fastest growth in the Asean+3 region.
The Philippines is seen to expand by 6.9 percent this year, faster than the 6.5 percent projection in April 2022. For 2023, the growth outlook is maintained at 6.5 percent.
“The Philippine economic recovery from the COVID-19 pandemic continues to gain traction.
However, external uncertainties and headwinds heightened in early 2022, posing additional challenges to policy implementation and economic prospects,” AMRO said yesterday, amid its release of the 2021 Annual Consultation Report on the Philippines.
AMRO said economic recovery is expected to broaden this year, with the private sector taking the lead in driving growth on the back of continued policy support.
Meanwhile, given the supply disruptions from the war in Ukraine, AMRO projects the headline consumer price index inflation to rise to 4.4 percent in 2022 before declining to 3.8 percent in 2023.
“The external account could face some pressure in 2022 as the external environment has become more unfavorable,” AMRO said.
AMRO also said given the high vaccination rate, a resurgence of COVID-19 infections should not pose a major risk unless the variant is more resistant to vaccines.
“The impairment of firms’ balance sheets continues to pose a risk to the banking sector’s financial health although the risk is mitigated by the recovering economic activity,” AMRO said.
“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,” it added.
According to AMRO, the Philippine economy is well-positioned to weather the adverse impact given its strong external position, although the peso exchange rate may come under some pressure.
“The heightened uncertainty in the global economic and geopolitical environment amid existing risks from the pandemic in the past two years have posed additional challenges to the government. Policymakers need to strike a good balance between supporting the recovery and safeguarding against risks,” AMRO said.
“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,” it added.
AMRO said 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,” it said.
Looking forward, AMRO said, the Bangko Sentral ng Pilipinas should continue to normalize its monetary policy stance.
“The pace of normalization should be determined by the strength of the economic recovery and trajectory of inflation,” it said.
