Banking giant HSBC slashed its Philippine gross domestic product (GDP) growth estimate for this year after factoring in the economic impact of rising infections from the coronavirus disease 2019 (Covid-19) this month.
“We recently reduced our real GDP growth forecast for 2021 to 6.3 percent from 6.5 percent implying the economy won’t be back to its pre-pandemic levels until end-2022,” HSBC economist Noelan Arbis noted in a report released on Friday.
HSBC’s revised projection falls below the government’s official forecast range of 6.5 to 7.5 percent, but a reversal of the economy’s 9.5-percent contraction in 2020.
“The Philippines continues to struggle with the pandemic,” Arbis also pointed out.
While the “winter surge” has receded in other parts of Asia, he said the number of new Covid-19 cases in the Philippines has increased significantly since the beginning of March.
Arbis cited, for instance, the 5,404 new infections recorded last March 15, which is the fourth-highest single-day infection tally the country recorded and the highest since 5,277 on August 26.
The past week has seen the daily infection toll consistently surpassing the 4,000 mark, sparking fears of a return to stricter quarantines. It also prompted local government officials to impose localized lockdowns and a uniform nighttime curfew in an attempt to keep cases from rising.
With these, the HSBC economist said the average mobility in the Philippines now ranks the lowest across Asia-Pacific.
“Recent developments greatly impede the economy’s path to recovery,” he continued.
Arbis said as Metro Manila accounts for nearly 40 percent of the country’s GDP, renewed lockdowns are also likely to limit private consumption and fixed investments — two of the Philippines’ main growth drivers.
“Fiscal policy is perhaps the only lever that the country’s economy can rely on for the recovery,” he, nevertheless, emphasized.
Arbis stressed the current stimulus, which is the Republic Act 11494, or the “Bayanihan to Recover as One Act” (Bayanihan 2), provided an additional 0.9 percent of GDP of fiscal support.
As of the end of 2020, the total disbursement amounted to just 0.6 percent of GDP and the unspent funds must be used by June 30 this year, he also underscored.
Furthermore, Arbis said the government also planned for a wider budget deficit this year (8.9 percent of GDP) after underspending in 2020 (7.6 percent of GDP), with P1.1 trillion allotted for infrastructure.
“Ensuring that these funds are fully disbursed and utilised in a timely manner would be critical to the recovery,” he highlighted.
In terms of monetary policy, Arbis said HSBC expects the Bangko Sentral ng Pilipinas to keep its policy rate on hold at the Monetary Board’s second rate-setting meeting on March 25.
At present, the central bank’s key interest rates were at their record low of 2.00 percent, 1.50 percent and 2.50 percent for overnight borrowing, lending and deposit rates, respectively.
“Despite ongoing challenges to the economy, we believe the BSP is limited in its ability to provide additional monetary support,” Arbis also mentioned.
He added factors such as above-target inflation rate, low real policy interest rate, and muted bank lending “suggest that additional rate cuts are neither necessary nor effective at the current juncture.”