Philippines near-term outlook improving amid risks

MANILA, Philippines — The near-term outlook for the Philippine economy is improving, but the much anticipated recovery remains vulnerable amid developments on the global front, an international think tank said.

In its latest chart book, Capital Economics noted an upside in the near-term outlook for the economy as COVID-19 cases in the country continue to drop, with fewer than 500 reported daily. This has allowed the government to place Metro Manila and several other cities under COVID Alert Level 1 for almost a month now.

Senior Asia economist Gareth Leather noted that the mobility tracker showed that people’s movements are now above pre-pandemic level for the first time.

The labor market also improved as the unemployment rate dropped to 6.4 percent in January.

However, Leather warned of risks, especially as economic recovery is still starting from a low base.

“The consumption-led economy is vulnerable to the global surge in commodity prices due to the war in Ukraine, which will leave a large dent in consumer purchasing power,” he said.

While movements in global energy prices have no direct impact on real gross domestic product (GDP), there are indirect effects caused by shifts in real income.

Oil prices in the world market remain elevated, still hovering at around $100 per barrel.

Pump prices on the domestic front went up again this week just after a major rollback.

Capital Economics already slashed its GDP growth forecast for the Philippines to 7.2 percent from its earlier projection of eight percent.

The revised GDP growth outlook is still a significant jump from the 2021 growth of 5.6 percent. However, it falls at the lower end of the government’s seven to nine percent target for the year.

It would also still leave the economy 13 percent smaller than its pre-pandemic trend by the end of 2022.

Against such a backdrop, the think tank expects the central bank to leave policy rates unchanged throughout the year.

“Although inflation will climb over the coming months on the back of steep rises in global commodity prices, this should prove temporary, and we expect it to drop back to within the central bank’s target range by the end of the year,” Leather said.