NextGen Day

Owing to the impact of the reintroduction of harsher movement restrictions due to the Omicron strain of coronavirus disease 2019, the ASEAN Macroeconomic Research Office (AMRO) has lowered its growth prediction for the Philippine economy for this year (Covid-19).

Despite the better restart of economic activity in the last quarter, AMRO upped its growth prediction for the domestic economy for 2021.

According to AMRO’s Asean+3 Regional Economic Outlook (AREO) report, the domestic economy expanded by 4.9 percent last year, up from 4.3 percent in the AREO 2021 Update released last October, while the 2022 projection is down to 6.2 percent from 6.7 percent.

Both forecasts are lower than the government’s estimates of 5 to 5.5 percent for 2021 and 7 to 9 percent for 2022.

On January 27, the Philippine Statistics Authority (PSA) will release the economic performance for the fourth quarter of 2021.

Dr. Hoe Ee Khor, the chief economist at AMRO, stated in a virtual briefing that consumption is projected to be the key engine of ongoing domestic growth as measured by gross domestic product (GDP).

“We expect the services sector and consumption to be the key drivers of the economy this year, with the reopening of the economy,” he said.

Khor attributed his optimism to the economy’s long-term resiliency in remittance inflows from overseas Filipino workers (OFWs), which have been one of the economy’s strongest pillars for decades.

However, he warned that if the infection rate rises again, the services sector may be struck hard again if tougher quarantine measures are required.

As a result, Khor noted the necessity to “intensify the vaccination program against Covid-19” in order to “protect the people.”

“This will keep the economy considerably more open,” he said, adding that it will “definitely boost the services sector.”

In the meantime, AMRO raised its average inflation prediction for the Philippines and other nations in the area for 2021 from 4.3 percent to 4.5 percent, and for this year from 3.2 percent to 3.3 percent.

The forecast for 2021 is higher than the government’s target range of 2 to 4%, although the projection for this year is on track.

“The upward revision compared to the October 2021 Update is mostly due to higher cost pressures for food, energy, and raw materials as a result of global price increases, however, these pressures are expected to ease by mid-year,” according to the report.

The Bangko Sentral ng Pilipinas (BSP) is expected to maintain its key policy rates “until the (economic) recovery is stronger,” according to Khor.

According to him, domestic inflation is now on the decline following last year’s high rate of price increases due to supply restrictions.

“By the end of this year, the output gap will be reduced, and maybe that would be the moment when the BSP will be more comfortable in normalizing the interest rate,” Khor said, noting that domestic output is projected to improve more this year.

“This, combined with the fact that the Philippines ‘ actual position is relatively robust,” he continued, “provides room for the BSP to retain interest rates until the economy is more completely recovered.”

As part of the central bank’s assistance to help buffer the domestic economy from the impact of the epidemic, the BSP’s key policy rates have been cut by a total of 200 basis points in 2020.

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