Fitch Solutions cuts Philippines growth outlook to 5.3%

MANILA, Philippines — Fitch Solutions Country Risk & Industry Research expects a slower economic recovery for the Philippines in the next two years as the country continues to struggle to control the resurgence of COVID-19 infections.

In its latest commentary titled “Philippines’ 2021 recovery hampered by the pandemic,” Fitch Solutions said it has slashed the gross domestic product (GDP) growth for the Philippines to 5.3 percent from the original target of 5.8 percent this year and to 6.5 percent next year.

The research arm of the Fitch Group expects the COVID-19 pandemic to have a lasting effect as it would continue to disrupt economic activity – at least through the first half of 2022.

“The Philippines has been battling a rampant third wave of COVID-19 cases, which looks set to delay the economic recovery further,” it said.

Fitch Solutions said domestic activity would rebound slower as output falls sharply in the second quarter after the reimposition of strict lockdown measures in the National Capital Region and adjacent provinces or NCR Plus.

“With a retightening of COVID-19 restrictions in late-March, it remains highly unlikely the economy will improve in the next quarter, meaning the recovery will be stalled once again,” it said.

In the first quarter, the economy contracted for the fifth straight quarter by 4.2 percent. The country booked a record 9.6 percent GDP contraction last year – the worst since 1947 as the economy stalled due to the strict lockdown and quarantine measures.

“This will weigh substantially on economic activity in the second quarter and reflects the risks to the Philippines’ growth outlook over the coming quarters. With a slow vaccine rollout – 1.8 percent of the population has received a single vaccine dose as of May 9 – the economy will continue to be hamstrung by the pandemic,” Fitch Solutions said.

For 2021, the research unit lowered its household consumption growth target to four percent given the pandemic uncertainty and loss of income over the past quarters.

It pointed out that leading indicators show a bleak picture for consumer activity, with the Google Mobility tracker showing retail and recreation activity down by 36 percent below pre-pandemic trend, while overall transit use is down by 50 percent as of May 7.

Fitch Solutions said a spike in consumer prices, with the headline inflation averaging 4.5 percent from January to April, or above the two to four percent target set by the Bangko Sentral ng Pilipinas would further erode household purchasing power, particularly as wages have fallen.

Fitch Solutions sees government consumption growing by seven percent this year to support domestic demand and offset some weakness in the private sector.

It also lowered the projected growth for fixed capital formation to 10 instead of 14 percent this year after plunging by 27.5 percent last year as loan disbursements for construction and overall production contracted in March.

The Development Budget Coordination Committee (DBCC) is set to meet this month to revise its 6.5 to 7.5 percent GDP growth target this year to take into consideration the recent lockdowns and weak