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Philippines: Q3 GDP growth seen slower
MANILA, Philippines — Dutch financial giant ING Bank said the Philippines’ gross domestic product (GDP) growth likely slowed to 3.8 percent in the third quarter from 11.8 percent in the second quarter due to intermittent lockdowns.
Nicholas Mapa, senior economist at ING Bank Manila, said despite the slower growth, the Philippine economy likely remained in positive territory in the third quarter, as well as on a quarter-on-quarter basis, with an expansion of 0.7 percent.
“GDP will return to positive growth in terms of year-on-year and quarter-on-quarter as authorities relax mobility curbs and vaccination efforts continue. Despite this, the Philippine economy may very well remain in recession as overall economic activity is subdued after a stark drop in overall GDP levels in the second quarter of 2020,” he said.
Despite the nascent recovery, Mapa said much of the economy continues to operate well below potential and the timeline to return to pre-COVID levels of GDP appears at least a year away.
“In the near term, new challenges to growth have emerged despite the modest improvements on the vaccination front. Inflation continues to be pervasive as the supply shocks spill over to several other parts of the consumer price index basket,” he said.
Mapa said elevated inflation hurts growth prospects on two fronts, sapping purchasing power and weighing on overall sentiment.
He added that a protracted run of above-target inflation may force the Bangko Sentral ng Pilipinas (BSP) to finally hike policy rates in the first half of 2022. Mapa described this as “a development that may nip the fledgling recovery in bank lending in the bud.”
Inflation averaged 4.5 percent in the first nine months despite slipping to 4.8 percent in September from a 32-month high of 4.9 percent in August. Inflation has exceeded the BSP’s two to four percent target since the start of the year.
“Inflation is the bane of household consumption, whittling down purchasing power, which by now is constrained by a very challenging job market. Price gains in the third quarter heated up more than in the second quarter, suggesting consumption may be unable to pick up as much as we would like,” he said.
Likewise, he also said the average manufacturing purchasing managers’ index (PMI) for the third quarter slipped below the average posted in the second quarter as overall output fell for seven months while staffing is on the downtrend.
“Lastly, despite having similar levels of quarantine implemented in the second and third quarters, the Delta variant was widely believed to be the more transmissible between the two, a factor that could have forced Filipinos to stay home or refrain from making unnecessary trips to the mall or market,” Mapa said.
According to Mapa, concerns about the Delta variant were so intense it was one factor cited for the rise in unemployment, with potential workers opting to stay home as opposed to going out to look for work.
“Both the second quarter and third quarter faced heightened restrictions in the National Capital Region for roughly six weeks as the country fended off separate COVID waves of infection. The Alpha variant caused a surge in infections by March, while the more infectious Delta variant proliferated in July, forcing a shutdown by August,” Mapa said.
“Increased vaccinations, at least in the NCR area, should help prevent a possible flare up but overall vaccination effort remains well-below the 70 percent threshold to reach some semblance of herd immunity as a country,” he said.
The Dutch financial giant said the widening of the trade gap is expected to also cap overall GDP with exports and remittances unable to keep the current account in surplus.
“These developments alongside a possible global slowdown due to higher inflation and hawkish central banks, the timeline just to get back to where we were before COVID may just have to be extended further. The transition to the dirty-L recovery remains in play,” Mapa said.
Source: https://www.philstar.com/business/2021/11/03/2138510/q3-gdp-growth-seen-slower