‘PH economy to rise over 7% in 2021’

Fitch Solutions and the Asean+3 Macroeconomic Research Office (AMRO) on Friday forecast the Philippine economy to grow by more than 7 percent in 2021 on improved consumption and confidence.

In a report, the macroeconomic research unit of the Fitch Group said it continued to see the country’s gross domestic product (GDP) expanding by 7.6 percent, adding that “household consumption remains key to the growth rebound, with a recovery in gross capital formation dependent on stronger domestic demand.”

It expects private consumption and gross capital formation to rise by 5.5 percent and 25.1 percent this year, respectively, from their average contractions of 7.9 percent and 35.4 percent in 2020.

The rebound in remittances, improving household sentiment and the government’s reluctance to return to the strict lockdown imposed in April are some of the positive factors that would support consumption, Fitch Solutions said.

Investments are also expected to expand, it added, but emphasized this may only materialize later in the year, given the low capacity utilization rates and building permit volumes in the first three quarters of 2020.

The Fitch unit also believes the government would keep its accommodative fiscal stance to aid recovery in domestic activity, while an upturn in global trade would boost the economy, albeit not enough to offset disruptions to private domestic demand.

“The ability of the government to provide stimulus also somewhat rests on its containment of the pandemic,” it added.

Fitch Solutions warned, though, that the risk of government funds being reallocated toward fighting another surge in coronavirus infections, as was the case last year, remained. And a reimposition of lockdown measures “would be highly damaging to the economy.”

In a separate statement, AMRO expects the country’s GDP to expand by 7.4 percent as more restrictions are eased and confidence is restored by mass vaccinations and continued policy support.

But it said more policy support and a faster rollout of coronavirus vaccines were essential to a more solid economic recovery.

AMRO warned the economy continued to face multiple downside risks and challenges to its recovery, including a prolonged wave of the pandemic and a slower-than-expected global rebound.

Businesses could also face financial distress with implications for reduced potential growth due to the scars a prolonged downturn could leave.

“As the recovery remains fragile and is at its early stage, the government should maintain sufficient policy support to ensure a robust economic recovery while safeguarding against potential macroeconomic and financial risks,” AMRO lead economist Siu Fung Yiu was quoted as saying in the statement.

The Asean office highlighted the need for further fiscal support, which would be critical if the growth momentum was weaker than expected and the economy were to falter.

On monetary response, it suggested that the Bangko Sentral ng Pilipinas should collaborate with other state agencies to offer banks greater incentives to increase lending to businesses, especially micro, small, and medium enterprises.

“The development of financial risks should be closely monitored, while the intervention and resolution framework should continue to be strengthened,” AMRO added.

Fitch Solutions’ and AMRO’s domestic output outlooks compare with the government’s official forecast range of 6.5 to 7.5 percent. Last year, the economy shrank by 9.5 percent, its lowest level since the government started collecting GDP data in 1946.

 

Source: ManilaTimes