MANILA – The Asean Macroeconomic Research Office (AMRO) has slashed its growth projection for the Philippine economy for this year given the impact of the reimplementation of stricter movement restriction due to the Omicron variant of coronavirus disease 2019 (Covid-19).
 
However, AMRO raised its growth forecast for the domestic economy for 2021 amid the stronger resumption of economic activities in the last quarter.  
 
In its Asean+3 Regional Economic Outlook (AREO) report released on Tuesday, AMRO now sees a 4.9-percent expansion for the domestic economy last year, up from 4.3 percent in the AREO 2021 Update released last October, while the 2022 figure is down to 6.2 percent from 6.7 percent. 
 
Both forecasts are lower than the government’s 5 to 5.5 percent assumption for 2021 and the 7 to 9 percent assumption for 2022. 
 
The Philippine Statistics Authority (PSA) is scheduled to announce the fourth quarter 2021 economic performance on January 27.
 
In a virtual briefing, AMRO chief economist Dr. Hoe Ee Khor said consumption is expected to be the main driver of continued recovery of domestic growth, as measured by gross domestic product (GDP). 
 
“This year, with the reopening of the economy, we expect the services sector and consumption to be the main driver of the economy,” he said. 
 
Khor attributed his expectations to the result of continued resilience of remittance inflows from overseas Filipino workers (OFWs), which has been among the strong pillars of the economy for decades now. 
 
However, he said that if the infections rise again, this will hit the services sector anew if ever there is a need to implement stricter quarantine measures. 
 
Khor thus cited the need to further ramp up the vaccination effort against Covid-19 “to protect the population.” 
 
“That will keep the economy much more open and they would certainly help the services sector,” he added. 
 
Meanwhile, AMRO hiked its average inflation forecast for the Philippines, among other countries in the region, for 2021 from 4.3 percent to 4.5 percent, and from 3.2 percent to 3.3 percent for this year.
 
The 2021 forecast is above the government’s 2 to 4 percent target band while the projection for this year is within target. 
 
“The upward revision relative to the October 2021 Update is mainly on account of higher cost pressures for food, energy and raw materials amid the global increase in prices, although these pressures are expected to ease by mid-year,” the report said. 
 
Khor expects the Bangko Sentral ng Pilipinas (BSP) to keep its key policy rates steady “until the (economic) recovery is stronger.” 
 
He said domestic inflation rate is now on the downtrend after the elevated rate of price increases last year due to supply constraints.
 
With domestic output expected to further recover this year, Khor said “so by the end of this year, the output gap would be narrow and maybe that will be the time that the BSP will be more comfortable in normalizing the interest rate.” 
 
“That, together with the fact that the actual position of the Philippine is quite strong, provides room for the BSP to hold interest rates until the economy is more fully recovered,” he added. 
 
BSP’s key policy rates have been slashed off a total of 200 basis points in 2020 as part of the central bank’s contributions to help buoy the domestic economy from the impact of the pandemic. (PNA)