Fitch Solutions has cut its Philippine gross domestic product (GDP) growth forecast for this year as it sees the continued pandemic-related lockdowns weighing down domestic activity in the near term.
In a report released on Monday, the Fitch Group unit announced that it now projects the economy to pick up by only 5.8 percent this year, slower than its earlier outlook of 7.6 percent.
The revised figure falls outside the government’s official estimate range of 6.5 to 7.5 percent, but a reversal of the Philippine economy’s 9.5-percent slide last year.
“The surge in Covid-19 (coronavirus disease 2019) cases in the Philippines in March and lockdown measures imposed, reflect the continued risks to the archipelago’s economic outlook,” Fitch Solutions stressed.
The government extended the stricter enhance community quarantine in Metro Manila and nearby provinces until April 11, 2020 to curb the surge in Covid-19 cases.
Fitch Solutions said it also anticipates this lockdown measure to be extended given the sustained climb in cases and the prolonged impact on the country’s hospital capacity.
“The likelihood of further outbreaks in other regions remains high and given the slow vaccination rollout in the country (less than 1 percent of the population has been vaccinated as of end-March) we believe the Philippines’ recovery will continue to be hampered by the pandemic,” it added.
Fitch Solutions added the recent signs of a gradual rebound in economic activity in the first quarter of the year were likely reversed with the more recent lockdown measures.
It also said the Philippine economy is highly vulnerable to lockdowns given its high dependence on domestic consumption and investment, so growth will likely drop again until lockdown measures are relaxed.
Fitch Solutions also sees a disrupted roll out of the government’s infrastructure spending drive.
“As such, we have revised down our annual growth outlooks for private consumption and GFCF [gross fixed capital formation] growth from 5.5 percent and 20.0 percent to 4.5 percent and 14.0 percent, respectively, in 2021,” it stressed.
Fitch Solutions said risks to its adjusted forecast are “very much tilted to the downside,” but added that growth support will come from a gradual recovery in external demand and remittance flows through 2021.
“We believe that overall remittance flows will begin to gradually rebound as growth picks up globally, particularly on the back of a recovery in the US and the Middle East on the back of rising oil prices, which together accounted for 57.4 percent of remittances in 2019,” it added.
Fitch Solutions’ view compares with the Bangko Sentral ng Pilipinas’ expectation that cash remittances from overseas Filipino workers will expand by 4 percent, a turnaround of the 0.8-percent decline in 2020.
“While lockdowns in Europe and tightening credit growth in China threaten the broader recovery in global demand, as vaccination rollouts progress we expect growth to prove strong, boosting the outlook for exports which we forecast to grow 9.5 percent, following a 16.7-percent contraction in 2020,” it also emphasized.
The central bank earlier reported that exports of goods shrank by 11.3 percent to $47.4 billion in 2020 from $53.5 billion last year, mainly from the shortfall in shipments of manufactures, mostly electronic products as well as travel goods and handbags, brought about by weak demand from major export markets.
“As such, the external backdrop should continue to provide support to the economy in 2021,” Fitch Solutions concluded.