PHL’s Long-Term Economic Prospects are Getting Better
We have more and better reasons to be optimistic about our economic prospects in the second half of 2021, although we should remain cautious given the threat of the Covid-19 Delta variant now gripping other Southeast Asian countries.
Our number of active Covid-19 cases, which was below 50,000 as of last week, is now one of the lowest in Asean, giving us the flexibility to become more economically active and allow more of our workers to leave their homes.
Indonesia, Malaysia, Thailand and Vietnam recently reported rising cases of the Delta variant, which is said to be more transmissible or infectious. Given the large number of Filipinos in these countries, as well as in the Middle East where the strain was also detected among thousands of people, we should not let our guard down. We should continue to follow health protocols, while enabling our businesses to reopen.
Businesses should also do their part by ensuring that their employees and customers are protected. We commend local government units for cracking down on establishments that openly defy health protocols, such as nightclubs and bars that operate without social distancing measures and beyond the curfew hours.
Our progress in the vaccination rollout is respectable, with nearly 14 million vaccine doses administered in the country as of last week. The Department of Health reported that as of July 14, about 10 million Filipinos received at least a dose of Covid-19 vaccine while 4 million completed both jabs. The goal is to ramp up vaccination to 500,000 doses daily. If we keep this pace, we are on track to inoculate 70 million adult Filipinos within the year, which is enough to achieve herd immunity.
Implementing health protocols, localized lockdowns and continuing our rapid vaccination rollout will guide our economy towards recovery in the second half of the year. If we are able to keep the virus reproduction rate below 1.0 in the coming months, we can continue to relax mobility restrictions and reopen all industries.
Localized lockdowns are more effective in containing the spread of the virus, without hurting the economy too much. Placing the whole Philippines under ECQ should be our last resort because it could put millions out of work again. Remember that our economy shrank 9.6 percent last year because of such quarantine restrictions. This pushed our unemployment rate to 17 percent last year. With the calibrated reopening of the economy, the jobless rate eased to 7.7 percent as of May this year. The ideal ratio is below 5 percent.
I agree with the National Economic and Development Authority’s position that the higher risk of the Delta variant could be better managed by imposing localized lockdowns, instead of placing the entire Philippines or large areas under a more restrictive level of quarantine.
Economic recovery is certainly on the horizon based on recent economic indicators, such as electricity demand, exports, manufacturing, remittances, vehicle sales and office space take-up. This is why I am not bothered by Fitch Rating’s revision of our credit rating outlook to “negative” from “stable.”
The negative outlook is not surprising because the government needs to spend more for our Covid response efforts while our economy is still recuperating. Anyway, we still enjoy investment-grade scores from the three major debt watchers.
An expansion between 5 percent and 6 percent this year is respectable, as this range will set the economy on a stronger expansion next year. Hopefully, we can exceed our pre-pandemic economic performance by 2022.
My optimism is supported by our macroeconomic fundamentals. The inflation rate is now on a downtrend despite the uptick in petroleum prices. While the peso has recently shown weakness against the US dollar, it was mainly due to rising imports, an indication of improving household spending and investments.
Our banks remain stable, although they could do more to extend loans to businesses. Our gross international reserves exceed $100 billion, or nearly a year worth of imports. Government debt is still one of the lowest in Asia, when measured as a percentage of the gross domestic product. The Department of Finance expects the national government debt to remain manageable at 58.7 percent of GDP this year.
What will sustain our growth in the medium term is the massive infrastructure buildup that is underway. The Department of Public Works and Highways led by Secretary Mark Villar inaugurated last week the first portion of the Central Luzon Link Expressway connecting Tarlac City and Cabanatuan City. Projects such as this would boost businesses in areas along the major road and disperse economic activities to more people.
Employment also started to recover as workers return to offices. The business process outsourcing sector is supporting the growth of the real estate sector in the provinces. This will translate into more economic opportunities in those areas. A 1,000-seat BPO center, for example, can match the income of a small rural town.
Fitch Ratings, meanwhile, may have been downbeat in its credit rating outlook but it still expects the Philippine economy to grow 5.0 percent in 2021, 6.6 percent in 2022 and 7.3 percent in 2023. That, to me, is a reflection of the Philippines’ promising growth potential despite the pandemic.
In the long term, I believe our young population will carry us through the next stage of global economic growth. With most of our neighbors adjusting their expectations because of their greying population, the Philippines is in the best position to take advantage of the new global economy.
The Philippine Statistics Authority revealed that the Philippine population reached 109,035,343 as of May 1, 2020. Our challenge is how to turn our large young population into a productive pool of entrepreneurs, builders, producers, and skilled workers, who will secure our place as a progressive nation in the long term.