With a growing middle class, a large and young population, and increasing urbanization, the Philippines is one of the most dynamic economies in the East Asia Pacific region. The country’s economic vitality is rooted in strong consumer demand supported by robust remittances and a vibrant labor market. Business activities are buoyant with noteworthy performance in the services sector, including the real estate, finance, insurance, and business process outsourcing industries.
The Philippines real economic growth slowed in 2019, but was still strong with 6.0% year-on-year. However, growth is projected to significantly decelerate this year due to the impact of the COVID-19 pandemic, including slowdown in remittances, tourism, investment, and trade. Nevertheless, economic growth is expected to gradually rebound in 2021-2022 as global conditions improve.
Below are some of the latest news and updates about the Philippine economy.
PH economy to shrink by 3.8%
The Asian Development Bank said the Philippine economy will possibly shrink by 3.8% this year, wider than government estimates, as the slump in investments and consumption drag further amid the COVID-19 pandemic.
The regional lender said it has revised the 2% growth forecast it made in April to a contraction for 2020, taking into consideration the longer than expected decline in economic activity amid the pandemic. “The forecast for 2020 is revised down to 3.8% contraction because household consumption and investment have slowed more than expected,” according to ADB’s Asian Development Outlook Supplement report. “The contraction in the global economy will continue to drag external trade, tourism and remittances.”
The Asian Development Bank’s latest forecast is worse than the government’s expected slump of between 2% to 3.4%, which abandoned pre-crisis projections of a 6.5% to 7.5% expansion for the year.
The outlook is better for 2021, with the Asian Development Bank seeing a 6.5% growth rebound for the Philippines and 4.7% for Southeast Asia. Manila will enjoy a boost from public infrastructure spending, alongside the anticipated recovery in business and consumer confidence that will perk up consumption.
Philippine economists identify sectors to be prioritized for reopening
As quarantine restrictions ease around the country, a group of economists identified key industries that should be prioritized in reopening, based on their impact on the rest of the economy.
According to economists Cid L. Terosa and Peter L. U from the University of Asia and the Pacific, most of the top-ranked industries are related to production of services and consumer spending. These include accommodation and food services, construction, public administration, and food manufacture.
“All sectors have been hurt by the pandemic, some more and others less. This paper proposes using output multipliers adjusted for demand and employment impact from the input-output table to gauge what industries have relatively more economic impact and merit prioritizing in terms of earlier reopening, or possible assistance,” the economists said.
According to the economists, “The idea behind it is simply that every industry uses as inputs the products or outputs of some other industries in the economy. Each industry must produce enough of its output to meet the requirements of other industries’ need for it as inputs to their own respective production activity (or intermediate demand), and that of households and government for final consumption, businesses for investment spending, and demand from outside the country (exports).”
Based on the economists’ findings, here are the sectors that need to be prioritized for reopening:
According to World Bank, the poverty incidence rate in the Philippines is projected to increase this year due to the economic fallout brought about by the COVID-19 pandemic. World Bank senior economist in the Philippines Rong Qian said, “We can expect an increase in poverty rate. We did a simulation, only assuming two months of loss of income by the poor and vulnerable population, the poverty rate can increase by 3.3 percentage points in 2020.” Qian noted that the assumption of 3.3% increase in poverty also assumed that there are no social protection measures.
Qian continues, “We know that the government has provided the SAP (social amelioration program) and wage subsidies.” However, she said that government cash aid only partially compensated the loss of income during the quarantine periods. “Because the economy is expected to contract we can expect the poverty rate to increase in 2020,” she added.
Japan debt watcher gives Philippines A- rating during pandemic
The Japan Credit Rating Agency (JCR) upgrades the Philippines’ credit rating to A- from BBB+ with stable outlook.
JCR said that it took into consideration the country’s strong fundamentals and its response to the COVID-19 crisis. “JCR holds that a downturn will be limited given the country’s strengthened economic base, resilient external position, and the government’s economic stimulus package totaling more than 9% of GDP (gross domestic product),” it said.
A higher credit rating means that the government and private businesses can borrow at lower interest rates.