ADB trims 2021 forecast for PH economy with ‘fragile’ recovery expected

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Metro Manila (CNN Philippines, April 28) — The Asian Development Bank has slashed its economic growth forecast for the Philippines this year to 4.5% as the country continues to grapple with the current health crisis.

In a media briefing on Wednesday, ADB country director Kelly Bird said 4.5% is the bank's “floor” forecast for the Philippine economy this 2021, meaning this is the minimum growth rate expected for Manila this year. He attributed the usage of a “floor” projection to the highly uncertain environment resulting from the COVID-19 pandemic, which has also led to a wide range of economic forecasts for the country.

The updated projection is down from the 6.5% forecast ADB made in December last year, and falls below the 6.5% to 7.5% target growth band set by economic managers for 2021.

“The economy fell sharply in 2020 and the recovery in 2021 will be fragile before growth picks up in 2022,” the report Asian Development Outlook said, also noting “considerable uncertainty” over how the COVID-19 pandemic will unravel and keep weighing on consumer and business sentiment.

The Philippine economy plunged by -9.5% last year, the worst ever since the government began collecting data on full-year economic growths in 1946.

Among the factors ADB cited for its expected fragile recovery for the Philippine economy are the re-imposition of strict quarantine rules in economic hub Metro Manila and some neighboring provinces starting late March in light of the alarming surge in COVID-19 cases.

The Philippine government has yet to announce quarantine classifications for May.

ADB likewise noted that the country began its vaccine drive this March, which other lenders such as World Bank said was “lagging” compared to other nations. The Washington-based lender also earlier trimmed its growth forecast for the Philippines, citing its high domestic transmission of COVID-19. 

The ADB report said the latest projection “assumes a modest fiscal expansion, especially through infrastructure spending and social assistance, COVID-19 vaccination advancing in the second half, and a global economic recovery.”

Government expenditure, private spending and exports will mainly drive the country’s economic expansion in 2021, said Bird.

The ADB country director noted the current fiscal policy will be expansionary by 1.3% of gross domestic product (GDP) this year, coupled with support from an accommodative monetary policy stance.

The 2021 national budget, said ADB in its report, is 9.9% bigger than last year’s, and features larger outlays for infrastructure development and social programs.

Government spending on infrastructure, which Bird noted has large employment multipliers, is higher by 8.5% than last year’s national budget for such projects and comprises 5.4% of local output, an increase from its 4.2% portion in 2020.

“The share of social services (one-third of the budget) will grow by 11.6%,” said the regional lender, with social spending covering programs strengthening the national healthcare capacity, implementing universal healthcare, providing cash transfers for poor households, and livelihood and education programs like online learning.

On this note, the bank said it expects a 5.5% expansion of the Philippine economy in 2022.

Inflation forecast for 2021 bumped up

Meanwhile, the ADB expects the rate at which prices of basic goods in the Philippines to go faster this 2021. From its earlier 2.4% full-year forecast, the regional lender now expects inflation to settle at a 4.1% overall rate this 2021.

Bird attributed the quicker inflation forecast mainly to supply side constraints, particularly on food, as the pandemic disrupted global supply chains. He also cited the rise in pork prices, with the country’s local hog supply taking a beating from the African Swine Fever.

Still, he said they expect these supply factors to eventually dissipate, and the rise in inflation is not among the major concerns this year.

The revised 4.1% projection is lower than the 4.2% estimate of the Bangko Sentral ng Pilipinas for 2021, with both figures dwelling above the 2%-4% target range of the central bank this year.

Developing Asia expected to fare better this year

Meanwhile, the ADB hiked its 2021 forecast for developing Asia — which consists of 46 member-economies — to 7.3% from the 6.8% it projected in December last year. This assumes renewed COVID-19 outbreaks are controlled, leading to stronger domestic demand and economic activity.

“Progress on vaccine rollouts and recovering regional as well as global demand are expected to consolidate the growth momentum,” the outlook read.

Developing Asia's growth in 2022 is expected to taper to 5.3%, the report added.

“After rapid rebounds this year, some deceleration is expected in East Asia and—mainly due to India—South Asia. The more moderate growth in 2021 in Central Asia, Southeast Asia, and the Pacific will accelerate in 2022,” it explained.