The country is expected to regain its growth momentum by the second half of 2021 as challenging economic recovery remains on the horizon, according to the chief strategist of an equity brokerage house.
In a webinar of the German-Philippine Chamber of Commerce and Industry, Regis Partners Inc. chief strategist and co-head research Rafael Garchitorena said they are more cautious on the country’s economic growth this year but a better economy is expected by 2022.
“We are confident and we can get the momentum going in the right direction by the second half of the year. It might be a little bit late than everybody else, but there’s a lot of reason to be optimistic for economic recovery,” Garchtorena said.
Earlier, First Metro Investment Corp., the investment banking arm of the Metrobank Group, expects the economy to bounce back into positive territory to 5.5 percent to 6.5 percent this year, with sustained government spending and the rollout of coronavirus vaccines.
“The global recovery will return to strength by 2022 and the Philippine economy will start rebounding trying to reach the 2019 level,” University of Asia and the Pacific economist Dr. Victor Abola said during the virtual FMIC economic and capital markets briefing.
By official reckoning, the country is still facing challenges this year that may hamper economic growth due to the pandemic but the “worst is over” last year.
Trade and Industry Sec. Ramon Lopez said the economic recovery has begun since the reopening of economic activities due to relaxed quarantine measures amid the coronavirus disease 2019 health crisis.
“We are still facing risk but I would also say that the worst is over. 2020 was really the height of the lockdown and we saw the economy really dropping. But ever since, we have seen signs of recovery from GDP (gross domestic product) to unemployment rates,” Lopez said.
Garchitorena said enacting the Corporate Recovery and Tax Incentives for Enterprises bill into law is a “big hope” for businesses as this would provide them a tax break which is retroactive from July 1, 2020.
However, this legislation would directly impact enterprises and a lot of trickling down is required for the poor to feel effects of the CREATE.
“But Covid (coronavirus) is hurting the poor. What will a corporate tax break would really mean for jeepney drivers? Nothing really. What will it do for the informal economy where there is no really income tax rate?” he asked.
The economic strategist added that one of the key risks in the economic growth this year is the rising inflation.
In December 2020, the inflation rate settled at 3.5 percent.
“It’s bad for consumption especially with high unemployment and rising input costs,” he said.
Garchitorena said increasing oil prices, which is now close to pre-pandemic level, has pushed higher power rates and transportation costs. These are expected to impact the cost of goods and services.
“I hope inflation numbers would come later,” he said.
He also said since the fiscal stimulus of the government is weaker compared to neighboring countries, it should push for reopening of economic activities and relaxing mobility restrictions.
He added the government should expand further the transportation sector and also make domestic travels easier.
On the other hand, Garchitorena said implementing the 2021 budget would stimulate economic recovery, with infrastructure spending expected to create more jobs for Filipinos.
“But I’m very certain that by this time next year, it’ll be a much rosier picture economically than today,” he added.
The country’s gross domestic product surged by 5.9 percent in 2019 but contracted by 10 percent as of third quarter 2020 due to the impact of the coronavirus pandemic.
In 2021, Abola said the expected increase of overseas Filipino workers remittances; government spending geared towards Reset (health), Rebound (infrastructure), and Recover (skills upgrading) programs; and market reform initiatives can support economic growth.
Market reform initiatives designed to reinvigorate the economy include Bayanihan 2, the Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery, the Financial Institutions Strategic Transfer, and Corporate Recovery and Tax Incentives for Enterprises bills.
Abola added other factors boosting this year’s growth are the mild inflation rate of 2.7 percent and the completion of big-ticket projects, including the Metro Manila subway, Northrail, South Luzon Expressway Extension, North Luzon Expressway East, and MRT-7 and Connector-2 easing traffic conditions in the National Capital Region.
The country’s inflation rate averaged 2.6 percent in 2020 as the impact of typhoons on agriculture products partly pushed prices higher in the last quarter.
“Hopefully, (by the) second or third quarter of the year, you will have the vaccine and the restrictions will be more focused and more localized, (in) barangay level or even less,” he said.
Abola said this year’s economic growth would be driven by industry sector, construction and manufacturing, while the services sector would suffer amid the impact of the pandemic on travel, hotels, and restaurants.
According to the Philippine Statistics Authority, the country recorded a 17.7 percent unemployment rate in April last year, the highest since 2005.
It slowed down to 10 percent in July when the government reopened economic and business activities.
After plummeting by 49.9 percent in April, export revenues recovered by 2.2 percent in September and 3 percent in November.
The GDP contraction also slowed down from a 16.9-percent decline in the second quarter of 2020 to -11.9 percent in the following quarter.
“We have been reopening the economy gradually and safely towards the latter part of 2020. That is the reason why we have been seeing signs of recovery (in) many aspects,” the DTI chief added.
He said the government has signed deals with Covid-19 vaccine manufacturers and the immunization program would be rolled out this year.
“Yes, there are still challenges but we expect the vaccines at least can provide some level of prevention despite new variants coming out. We simply just have to manage the virus and the policy of the Philippine leaders right now is to be able to have an attitude of risk management rather than risk avoidance,” Lopez said.
He said he is also expecting the country to benefit from regional trade deals, including the recently concluded Regional Comprehensive Economic Partnership.
The DTI, he added, is also looking into possible participation in the Comprehensive and Progressing Agreement for Trans-Pacific Partnership).
“Our intention really is to look into that regional bloc so that we can also benefit from a freer global trade bloc that (the) CPTPP has,” Lopez said.
Meanwhile, he welcomed the announcement of United States President-elect Joe Biden on a $1.9-trillion stimulus package for their economic recovery.
“Definitely, we need America, the biggest economy in the world, to really be out there and recovering fast as well. The recovery of America is also a recovery for the world and for other countries of the world,” he said.