ING: No quick return to growth for Philippines

MANILA, Philippines — The Philippines may not quickly return to pre-pandemic growth as the global health crisis snapped the country’s 21-year growth streak with a gross domestic product (GDP) contraction of 10.3 percent this year, according to Dutch financial giant ING Bank.

In a report, Nicholas Mapa, senior economist at ING Bank, said the protracted recession, coupled with the sustained drop in productive capacity means the Philippines would not have a quick return to pre-pandemic growth.

“An ongoing 10-month-long lockdown period has hobbled growth prospects even as authorities have moved to relax mobility restrictions. Going forward, the protracted recession, coupled with the sustained drop off in productive capacity likely means the Philippines will not have a quick return to pre-pandemic growth velocity,” Mapa said.

The Philippines contracted by 10 percent from January to September as the economy stalled after Luzon was placed under enhanced community quarantine in mid-March to slow the spread of COVID-19.

The Development Budget Coordination Committee (DBCC) is now expecting a deeper 8.5 to 9.5 percent contraction this year.

Mapa said the economy is seen bouncing back with a growth of 4.6 percent in 2021 and 4.2 percent in 2022, still lower than the six percent growth recorded in 2019.

Mapa said the government appears to be reining in on spending and targets a 7.6 percent of GDP deficit for this year following two stimulus packages.

For 2021,  Mapa said the government deficit cap of 8.5 percent of GDP would only be achievable if expenditures remain in check as authorities are banking on structural reform bills such as Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act .

“Expect authorities to grapple with a widening of the deficit to GDP ratio, more so as growth is expected to sputter. A slower-than-expected recovery would mean revenue streams remain constrained at a time that GDP is likely to post only modest growth,” Mapa said.

ING expects the country’s budget shortfall to narrow from 6.7 percent of GDP this year to 6.1 percent next year and 5.6 percent in 2022.

Mapa said the Philippines continues to enjoy a solid external position with the latest balance of payments (BOP) registering a strong surplus, driven by a current account surplus and a large amount of foreign borrowings by the national government helping to shore up the financial account.

Based on its latest assessment, the Bangko Sentral ng Pilipinas (BSP) is now looking at a wider BOP surplus of $12.8 billion or 3.4 percent of GDP this year, and a wider current account surplus of $8.4 billion or 2.3 percent of GDP.

“The peso has enjoyed an appreciation bias for most of the year. With the current account expected to remain in surplus next year and financial account flows from government borrowing forecast to be substantial, the Philippine external position is likely to be solid for at least the next 12 months,” Mapa said.

ING sees the peso appreciating further to 47.38 to $1 by end of 2021 from 48.25 to $1 by the end of this year, before weakening to 48.76 to $1 in 2022.