Why the Philippines GDP may hit 9% in 2021

Why the Philippines GDP may hit 9% in 2021
Image: FinanceAsia

Confidence is growing that the Philippines economy will rebound in 2021 despite the ongoing economic impact of the COVID-19 pandemic

 Although the Philippines economy is likely to see its first annual decline in the nation’s gross domestic product (GDP) in 22 years, optimism is growing that there will be a strong rebound in 2021, despite disruptions caused by the coronavirus pandemic.

Setting the stage for next year’s recovery is this year’s combination of aggressive monetary easing and the initial tranche of the government’s fiscal stimulus, according to a new report by First Metro Investment Corporation (First Metro), the investment banking arm of Metrobank Group.

“The 2021 outlook appears brighter with the 2020 lost output overtaken by a rapid 8% to 9% GDP expansion. With a huge $30 billion stimulus plan in the works and normalisation of business operations, we project a notable rebound in GDP growth in 2021,” First Metro said.

Adding to positive expectations, inflation continued its downward trajectory falling to 2.1% in May 2020 (compared to 3.5% in May 2019).

This small shift from April’s 2.2% was within the Bangko Sentral ng Pilipinas’ (BSP) target of 2-4% for this year. Food supply disruptions prevented inflation from falling below 2% in the second quarter of 2020.

On another positive note, S&P Global Ratings recently reaffirmed the nation’s BBB+ credit rating at two notches above minimum investment grade standard with a stable outlook going forward, a move that saw the peso trading higher. The country also recently achieved A- from the Japan Credit Rating Agency.

In order to shore up domestic liquidity and support credit facilities, the Monetary Board cut policy rates by 50 bps to 2.25% in late June. The BSP hinted of a reserve requirement ratio cut ahead, also.

“With a huge $30 billion stimulus plan in the works and normalization of business operations, we project a notable rebound in GDP growth in 2021”

 Notwithstanding the current optimism, the main drivers of the economy – domestic consumption and investment spending – will weaken in the coming months as a sharp drop in overseas remittances impacts household spending.

“COVID-19 (in terms of world economic growth) and ultra low crude oil prices have crushed Middle East economies, resulting in huge unemployment and overseas foreign worker layoffs. The blow will likely mean the first annual decline in remittances for 2020 and will weaken consumption spending in the Philippines economy.” First Metro stated.

Remittances from overseas workers reached $30.1 billion in 2019 with the central bank forecasting a 5% decline this year, partially offset by resilience in the BPO market.

ASSETS OF CHOICE

With capital preservation in mind, government and high-quality corporate bonds became the asset of choice for investors seeking to mitigate the effects of the pandemic and concerns about the speed of economic recovery globally.

However, the cumulative effects of the abundant liquidity assisted by the BSP’s policy and reserve rate cuts plus low inflation are likely to keep yields at low levels. According to First Metro, downside risks remain and its analysts warn that upward pressure may surface between now and August, if the government goes beyond 9% of GDP deficit for 2020.

Looking to the future, corporate bond issuances could surge in H2 to meet an increasing demand for refinancing of existing debt.

The equities market could remain volatile while global uncertainty about recovery from the pandemic remains. In the Philippines, this is likely to continue until Luzon’s restrictions are lifted and conditions begin to normalise.

“COVID-19 will alter consumer behaviour and take a bite out of corporate profits, down 21.9% in Q1, for 28 reports out of 30 PSEi constituent stocks,” First Metro said, adding that investors were likely to take a more positive view in the last half of the year.

After two months of languishing around 5,000 levels, the Philippines Stock Exchange index (PSEi) bounced back to above 6,500 in mid June, as the government lockdowns eased and investors focused on the nation’s potential rebound.

But there is still some way to go before the PSEi reaches the 2019 year-end level of 7,815.

The Taal volcano eruption followed by the pandemic, shutdowns, reduced tourism and falling overseas remittances together with disruptions to supply chains, manufacturing and trade plus financial market upheavals all contributed to the World Bank’s assessment that overall, the nation’s economy will shrink by 1.9% this year. However, the nation’s obvious resilience and a strong vote of confidence by international investors highlights the remarkable staying power of the nation’s economy.
Share on Google Plus

About Makisig Bayani

I am among of the head writers and administrators of this repository news web site. I always on the heads up when it comes to Sports, Politics, Economy, Business, Physics, Mathematics, Technology, computers and NEWS all over the world that triggers ny eyes and interests. I am working as a volunteer with other 14 administrators, researchers, writers and contributors. We are a strong solid team. Join us and be among of the contributor with your name on each posted article.

    Anonymous or Google Comment
    Facebook Comment

YOU MAY LIKE TO READ

LEARN FOREX TRADING AND GET RICH

Investment Recommendation: Bitcoin Investments

Live trading with Bitcoin through ETORO Trading platform would allow you to grow your $100 to $1,000 Dollars or more in just a day. Just learn how to trade and enjoy the windfall of profits. Take note, Bitcoin is more expensive than Gold now.


Where to buy Bitcoins?

For Philippine customers: You could buy Bitcoin Online at Coins.ph
For outside the Philippines customers  may buy Bitcoins online at Coinbase.com