PHILIPPINES ECONOMIC UPDATE - NAVIGATING A CHALLENGING RECOVERY Kevin C. Chua Senior Economist
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PHILIPPINES ECONOMIC UPDATE NAVIGATING A CHALLENGING RECOVERY Kevin C. Chua Senior Economist
Key Messages ● The resurgence of COVID-19 cases and the reimposition of stringent quarantine measures held back early signs of an economic rebound. ● The economy is expected to recover over the forecast horizon, but there are significant downside risks. ● The key policy challenges are to manage the pandemic, effectively deliver social protection, and mobilize private sector participation in the recovery.
Recent Economic and Policy Developments The resurgence of COVID-19 cases and the reimposition of stringent quarantine measures held back early signs of an economic rebound.
The economy remained in recession in the first quarter of
2021 with the contraction being broad-based.
Demand side: Contribution to GDP growth Supply side: Contribution to GDP growth
15 10
8
10
6
5 4
0 2
0
Percentage point
Percentage point
-5
-2
-10
-4
-15 -6
-20 -8
-10 Agriculture
-25
-12 Manufacturing
-30 -14 Other industries
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 -16 Services
GDP growth
2018 2019 2020 2021 -18
Net exports -20
Investments Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
Government Consumption
2018 2019 2020 2021
Household Final Consumption Expenditure
GDP GrowthMonetary policy was accommodative to growth despite
higher inflation.
Inflation and Key Policy Rate
12
10
8
Percent
6
4
2
0
-2
Jun-18
Jun-19
Jun-20
Dec-18
Dec-19
Dec-20
Sep-20
Sep-18
Sep-19
Mar-18
Mar-19
Mar-20
Mar-21
Core Inflation Headline Inflation
Food & Non-alcoholic beverage BSP Key policy rateThe fiscal deficit continued to widen, leading to an
increase in public debt.
National Government Fiscal Balance National Government Debt
25 3.5
Fiscal balance (Percent of GDP)
70 4.0
20 1.5 60
3.5
Percent of GDP
-0.5 50
Percent of GDP
3.0
15
-1.9
Percent of GDP
40
-2.5
-3.1 -3.4
2.5
10 30
-4.5
2.0
20
5 -6.5
1.5
-7.6 -7.4 10
0 -8.5
0 1.0
2018 2019 2020 Q1 Q1 2018 2019 2020 Q1 2020 Q1 2021
2020 2021 External debt
Domestic debt
Revenues Expenditure Fiscal Balance (RHS) NG Guaranteed debt (RHS)Outlook and Risks The economy is expected to recover over the forecast horizon, but there are significant downside risks.
The growth prospects hinge on the ability to
manage the COVID-19 health crisis.
50 Cumulative vaccine doses administered per 100
Reported cases per day
45 people.
18,000
40
16,000
35
14,000 30
12,000 25
10,000 20
8,000 15
6,000 10
4,000 5
2,000 0
1/1/2021 2/1/2021 3/1/2021 4/1/2021 5/1/2021 6/1/2021
0
3/6 4/6 5/6 6/6 7/6 8/6 9/6 10/6 11/612/6 1/6 2/6 3/6 4/6 5/6 6/6
Indonesia Malaysia Philippines
Reported cases 7-day moving average Thailand China South KoreaThe economy is expected to recover over 2022-2023
following the deep recession in 2020.
Philippine GDP Growth Projections
Forecast
9
7
5
3
1
Percent
-1
-3
-5
-7
-9
-11
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
April 2021
March 2021projections
projections June 2021 projections Actual growthThe economic recovery will contribute to renewed
progress in poverty reduction.
Unemployment and Underemployment Actual and projected
20 45% $3.20-a-day poverty rates
18 40%
16
14 35%
12
Percent
30%
10
25%
8
6 20%
4 15%
2
0 10%
Jan Apr Jul Oct Jan Apr Jul Oct 5%
Unemployment Underemployment 0%
2006
2009
2010
2013
2014
2017
2018
2021
2022
2007
2008
2011
2012
2015
2016
2019
2020
2018 2019 2020 2021Policy recommendations The key health policy response remains the management of the virus and roll out of the vaccination program. Effectively delivering social protection programs will help reduce the extent to which the crisis adversely affects long-term human capital accumulation. Mobilizing greater private sector participation in public infrastructure projects will be important as the government faces limited fiscal space in the short term. Relaxing restrictions on FDI is expected to boost the economic recovery.
Key Messages ● The resurgence of COVID-19 cases and the reimposition of stringent quarantine measures held back early signs of an economic rebound. ● The economy is expected to recover over the forecast horizon, but there are significant downside risks. ● The key policy challenges are to manage the pandemic, effectively deliver social protection, and mobilize private sector participation in the recovery.
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