The Philippine economy likely grew faster than previously projected last year, and continued support from the government is needed to sustain the recovery, the ASEAN+3 Macroeconomic Research Office (AMRO) said.
In a new report released Tuesday, the regional surveillance organization projected the country’s gross domestic product (GDP) to have grown 4.9% year-on-year in 2021, higher than its old forecast of 4.3% back in October.
But given the higher base from last year, AMRO expects the economy to grow at an annualized 6.2% in 2022, lower than its previous projection of 6.7%.
Dr. Hoe Ee Khor, lead economist at AMRO, said reviving the country’s pandemic-hit services sector is crucial in sustaining the fragile recovery because the Philippines is "more dependent" on consumption compared to other economies in the region. To do this, Khor said the government should further relax movement restrictions while ramping up vaccinations to stimulate consumer spending.
“Weakness is the service sector. If they (government) can open the economy up more fully, the service sector will be able to recover more robustly,” Khor told journalists in a virtual press briefing.
“If they had to close down for any other reason such as new outbreaks and such, then the Philippines will be affected more," he added.
Latest data showed the economy eked out a 7.1% growth in the third quarter of last year despite the onslaught of Delta variant at the time. That better-than-expected performance convinced economic managers to hike the government’s growth target for 2021 to 5-5.5%.
But the state was forced to tighten restrictions anew this month as the super contagious, but less virulent, Omicron variant drives daily COVID-19 cases to new highs. That said, Khor stressed the need to keep giving the economy more juice by maintaining the Bangko Sentral ng Pilipinas’ historic-low policy rates “until recovery is stronger”.
For now, AMRO said the BSP still has some space to keep borrowing costs cheap for consumers and businesses. While AMRO projected inflation to have hit 4.5% last year — above the government’s 2-4% annual target — consumer price growth is forecast to cool down to 3.3% this year on hopes of easing supply-demand imbalance.
“By the end of the year, maybe this will be time for BSP to normalize interest rates,” Khor said.
Elsewhere, AMRO was optimistic that economic recovery of ASEAN+3 regions, which included China, Japan, and Korea, is on pace amid the continuing threat of the Omicron variant. Khor noted that the region's high inoculation rates mitigated risks that are now “tilted on the downside”
"Growth expected to remain relatively robust around 5%," Khor said.