Faster reopening, stronger stimulus needed in 2021

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    When the lockdown measures were eased in June, some people were forced to walk going to their respective offices as public transportation were not yet made available. Instead of a V-shaped recovery, BPI lead economist Jun Neri said the country is looking at a more prolonged recession and a W -shaped rebound. (Photo by Rhoi Cobilla)

    Bank of the Philippine Islands (BPI) Lead Economist Jun Neri says a stronger and more focused stimulus is needed if the country hopes to recover quickly during an online forum on global economic prospects for 2021 hosted by BPI.

    In the third quarter of 2020, the Philippine economy declined by 11.5 percent, with household consumption falling by 9.3 percent, and investment dropping 41.1 percent with confidence still low despite the more relaxed quarantine.

    “Production is responding positively to easing of quarantine measures. But the country’s recovery may continue to fall behind our ASEAN neighbors if reopening remains slow and fiscal response remains too conservative,” Neri said.

    Global economist Dr. Thierry Apoteker remains optimistic. “It looks like the worst is behind us since governments are more hesitant to implement strict lockdowns,” said the chairman of TAC Economics—a leading provider of global economic, financial and risk advisory services based in France.

    Apoteker says the road to recovery will not be smooth given the likelihood of surges or waves of infection which require some form of restrictions. “Several economies will likely experience an asymmetric V-shaped recovery which will last for at least two years,” he said, adding that the pace of recovery will be different for each developed economy.

    For the Philippines, Neri anticipates that, instead of a V-shaped recovery, the country is looking at a more prolonged recession and a W -shaped rebound, wherein the economy begins to recover rapidly, but then falls into a double-dip recession, but ending with another sharp rise.

    Neri says Philippine peso and interest rates are likely to show manageable, gradual increases. “Inflation risk is low but supply disruptions need to be watched closely,” he added.

    While TAC Economics projects that economic output in countries heavily affected by the pandemic will not likely return to pre-COVID levels in 2021, Apoteker notes that several economies are already seeing significant changes in consumption patterns. He also said unconventional monetary policies will likely continue into the next year given the gradual pace of recovery.

    “As a result, liquidity will remain substantial in 2021. Low returns in the bond market might force investors to seek returns in high-risk assets like equities. The abundance of liquidity is expected to cause volatility in the stock market,” he said.