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Philippines exits recession but Covid clouds outlook

Makati, financial center of the Philippines

The Philippine economy showed its fastest year-on-year growth since 1988, led by rising domestic demand and a rebound in construction activity. But the ongoing lockdowns aimed at fighting the spread of the delta variant are clouding the future outlook, as per analysts.

Gross domestic product (GDP) rose to 11.8% in Q2, with the economy exiting recession after five consecutive quarters of contractions. In the same period of last year, the Philippine economy contracted 17%.

Philippines out of recession?

In a research note, ING Bank Manila senior economist Nicholas Mapa said that the resumption of lockdowns in April and in August has derailed the economic recovery. “We can expect this trend to continue in the second half of the year,” he wrote.

Calling it the “base effect,” Sian Fenner, Lead Asia Economist from Oxford Economics, said the Q2 GDP was boosted by the low base in Q2.

The overall GDP in the first half of 2021 was 3.7% higher than the first half of 2020. GDP had fallen to a record -9.6% last year.

According to Philippine Statistics Authority (PSA) chief Dennis Mapa, the economy needs to grow 8.2% in the second half of the year to hit the low end of the government’s full-year growth target of 6-7%.

Recovery prospects still dim

Tighter mobility restrictions reimposed by authorities in Metro Manila from August 6-20 could complicate the outlook for the second half of the year and further derail the economic recovery into recession, economists said. The country has recorded 1.67 million cases as of Tuesday, the second-highest caseload in Southeast Asia.

“We have turned more cautious about the short-term outlook following tightened mobility restrictions as well as softer exports amid Covid-related regional supply disruptions and weaker demand among some trading partners. We will be reviewing our 2021 GDP forecast of 4.8%,” Fenner mentioned in a report.

IMF’s 2021 growth forecast for the Philippines in July, was 1.5 percentage points lower at 5.4% from April’s projection. However, for 2022, IMF revised projections up by 0.5 percentage points to 7%.

Most analysts expect policymakers to keep key interest rates accommodative at their meet on Thursday.

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno hinted on Monday the central bank’s resolve to maintain monetary policy accommodative as long as needed to ensure a strong and sustainable economic recovery from the pandemic led recession.

He expects a “strong recovery” growth of around 7.7% in 2022 and 6.5% in 2023.