ING sees strong Q2 GDP rebound

MANILA, Philippines — Dutch financial giant ING Bank said the Philippines is in for a strong bounceback with a double-digit growth in the second quarter, ending five quarters of contraction brought about by the pandemic-induced recession.

In a virtual briefing, ING senior economist Nicholas Mapa said the country’s gross domestic product or GDP is seen growing by 13 percent in the second quarter from a contraction of 3.4 percent in the first quarter as the economy further reopens from measures to contain the spread of COVID-19.

“It looks like the government is trying to relax some of the restrictions, especially with regard to opening up cinemas, places of worship. And if that pushes through, I’m willing to sort of tack on a couple more percentage points to the growth story,” Mapa said.

He said ING is now looking at a GDP growth of 5.1 percent instead of 4.7 percent this year after the Philippines slipped into recession with a record 9.5 percent GDP contraction last year.

Mapa said GDP growth is seen stabilizing at 5.9 percent in the third quarter and five percent in the fourth quarter.

He pointed out that growth this year is primarily driven by base effects as ING sees an L-shaped recovery as the economy fails to return to the pre-pandemic trajectory of 6.2 percent.

Mapa said the country is seen bouncing back to pre-pandemic levels in the fourth quarter of next year.

ING research head and chief economist for Asia Pacific Rob Carnell said the region has barely started the COVID-19 vaccination process that could reduce the severity of the disease and take pressure off the strained health systems.

“To some extent, growth in 2021 in Asia is an inverse function in 2020. For example, the Philippines contracted the most of any economy in Asia in 2020, but shows the highest growth rate in 2021,” Carnell said.

The ING executives also expect the Bangko Sentral ng Pilipinas to keep interest rates steady at an all-time low of two percent this year as inflation is seen breaching the upper end of the BSP’s two to four percent target in the next few months.

Mapa said inflation is seen accelerating to four percent this year from 2.6 percent last year after averaging 4.2 percent in the first quarter and 4.3 percent in the second quarter.

He added monetary officials are willing to accept or accommodate negative real interest rates for some time.

“The more important problem right now is that the economy is in recession and I guess negative real rates may pose some challenges. Given the economic situation, I think you focus on trying to get the economy back on track before you worry about possible bubbles that might be forming in,” Mapa said.

Likewise, he said the BSP’s Monetary Board is not likely to lower the reserve requirement ratios of banks as the COVID-19 response measures of the central bank had freed up P2 trillion in additional liquidity into the financial system.