Base effect-driven rebound expected in Q2; recovery path uncertain — poll

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Metro Manila (CNN Philippines, August 6) — Economic growth likely swung back to positive territory in the second quarter, but mainly because it rebounded from last year's record plunge, economists said.

A CNN Philippines poll among 14 economists yielded a forecast range of 4-15.2% for the period. This led to a mean growth projection of 10.03% for the second quarter, improving from the -4.2% pace logged during the first three months of 2021. The Philippines remains in recession this year with the latest economic contraction.

However, analysts noted that the forecast growth is after the 16.9% nosedive recorded from April to June last year — the steepest since records became first available in 1981.

“This headline result should be taken with a huge pinch of salt, because it will largely be on the back of an extremely favourable base effect,” said Pantheon Macroeconomics senior Asia economist Miguel Chanco, who expects an 11.5% figure for the quarter.

This low base effect was likewise supported by the relaxation of quarantine restrictions during the period, according to De La Salle University School of Economics associate dean Dr. Mitzie Conchada. She forecasts a single-digit growth for the period at 5%.

While main economic hub National Capital Region was placed under stricter quarantine measures along with Bulacan, Cavite, Laguna and Rizal — collectively known as NCR Plus — the area eventually eased to general community quarantine with varying levels of restrictions by June.

Economic managers have emphasized this year’s stringent measures were more calibrated and risk-managed, keeping as many sectors up and running as possible compared to the height of lockdowns in the second quarter of 2020.

Better employment figures and the recovery in remittances also contributed to improved economic performance for the said three months, explained BPI lead economist Emilio Neri Jr.

To recall, the national unemployment rate surged to a record 17.7% high in April last year — the height of the country’s first round of hard lockdowns. This fell to an 8.7% rate in the same month this year, then 7.7% for May and June as quarantine rules relatively improved.

However, some analysts also reminded that quarter-on-quarter growth may still remain negative. UnionBank chief economist Ruben Carlo Asuncion attributed this to” still limited mobility, rolling targeted heightened restrictions in various parts of the country, and a rather slow rollout of vaccinations.”

Full-year performance likely short of gov’t target

Despite optimistic forecasts for the second quarter, economists’ outlook for full-year economic growth aren’t as rosy — growth may fall short of the government’s 6-7% target band for 2021.

“Renewed restrictions around the Metro Manila given the more transmissible Delta variant mean that the recovery prospect is once again dimmed,” said Oxford Economics Makoto Tsuchiya, who also flagged the slow pace of the country’s vaccine drive.

Institutions such as ING Bank Manila and ANZ Research have also dialed down their forecasts to 3.8% and 4.2%, respectively, from prior projections of 4.7% and 4.8% in light of the return of stricter quarantine measures to avert further spread of the feared variant.

While Capital Economics believes gross domestic product will grow by 6% this year, its Emerging Asia economist Alex Holmes emphasized the risks are “clearly weighted to the downside.” He adds a large, new Delta variant-driven wave would “likely see growth far below” the economic team’s target range.

On a quarterly basis, University of Asia and the Pacific Dr. Bernardo Villegas expects another decline in the third quarter followed by growth come October to December due to holiday and elections-related spending by the fourth quarter. In sum, he expects a full-year growth of 3-4% for 2021.

The Philippine Statistics Authority is scheduled to announce preliminary Q2 and revised Q1 GDP figures on August 10.