Fitch lowers 2021 GDP forecast to 5.3 percent

Fitch Solutions on Wednesday downgraded its 2021 Philippine economic growth projection to 5.3 percent from 5.8 percent as the coronavirus disease 2019 (Covid-19) pandemic continues to hamper businesses.

“The Philippines economy will struggle to recover amid its continued struggles containing the Covid-19 pandemic and normalizing economic activity. In particular, domestic activity will rebound slower as output falls sharply in Q221 (second quarter 2021) due to renewed lockdown measures,” Fitch Solutions said in a report.

“We at Fitch Solutions believe the Philippines economy will continue to struggle amid its difficulties controlling the spread of Covid-19 and normalizing economic activity. The Philippines has been battling a rampant third wave of Covid-19 cases, which looks set to delay the economic recovery further,” it added.

Fitch’s latest forecast is below the government’s 6.5- to 7.5-percent growth projection for this year. It is, however, a turnaround from the -9.6 percent reported last year.

According to Fitch, the tighter restrictions imposed on Metro Manila, Bulacan, Cavite, Laguna, and Rizal in mid-March to May this year will have a huge impact on economic activity in the second quarter.

It added that the slow vaccine rollout will also affect economic growth for the year.

“With a retightening of Covid-19 restrictions in late-March, it remains highly unlikely the economy will improve in the next quarter, meaning the recovery will be stalled once again,” said Fitch Solutions.

“As we highlighted previously, the Philippines is highly vulnerable to lockdowns given its significant dependence on domestic activity for growth. Together, private consumption and gross fixed capital formation (GFCF) accounted for 100.4 percent of GDP in 2019, and thus the combination of Covid-19 disruptions led to the economy being one of the worst performing among emerging markets in 2020,” it added.

Lower household consumption

Household consumption is forecast to grow by 4.0 percent, down from the earlier 4.5-percent projection that Fitch attributed to elevated household savings rates due to the loss of income during the past quarters.

Fitch said the spike in inflation, which settled at 4.5 percent in April, will also erode household purchasing power.

One support factor for households, however, is the likely rebound in remittances on the back of the strong recovery of the United States and a pick up in international trade.

Fitch, meanwhile, said the outperformance of manufacturing relative to services and retail and wholesale shown in the Bangko Sentral Ng Pilipinas (BSP) indices will fade over the coming months, with sentiment among manufacturers in the Markit survey declining from 52.2 in March to 49.0 in April.

Capital formation is seen to grow by 10 percent, down from the earlier forecast of 14 percent.

“We continue to expect public sector support to spark a rebound in investment activity but the disruptions from lockdowns and weakened business sentiment will hamper policymakers’ efforts,” said Fitch.

Forecast for 2022

Also, Fitch Solutions said economic recovery for next year will continue to be affected by the pandemic.

“We have revised down our outlook for the following year as well, given our expectations for Covid-19 to continue to disrupt activity at least through H122 (first half 2022),” it said.

Fitch said the Philippine economy will likely grow by 6.5 percent in 2022, down from 8.2 percent previously, further noting that economic output in nominal terms will be 11.5-percent lower than its pre-pandemic trend level by 2025.