Pandora’s hope

PHILIPPINES - Forecast 02 Dec 2021 by Romeo Bernardo and Christine Tang

The Philippine economy withstood a Delta-driven surge in Q3 and is set to end the year on a high note. We forecast GDP growth at 5.5% this year and next, bringing domestic output to pre-pandemic levels only by late 2022. This outlook is based on two critical assumptions: (1) existing vaccines work against Omicron, the latest “variant of concern,” in preventing severe illness; and (2) national and local elections slated for May 2022 are conducted credibly and the results conclusive.

Even against this backdrop, the year ahead will be quite challenging, having to contend with all the ills that followed Covid-19 out of Pandora’s box. The virus itself has yet to fade away, various government restrictions are still in place, and the vaccination drive, currently covering less than half of the population (two doses), still has a long way to go. The usual election jitters are heightened by political polarization following the entry of Ferdinand Marcos, Jr., the former dictator’s son, in the presidential race. On the economic front, inflation and debt worries are top of mind, with expected tighter financial conditions globally limiting the maneuvering room for monetary and fiscal authorities and generally raising risks for emerging markets. Too, the US-China trade and technology conflict is lingering, creating additional uncertainties for trade and investments. In this environment, it is the paranoid’s instinct to expect the worst.

We are rather clinging to the hope that the midyear political turnover will give rise to good and effective leadership, under which there will be macroeconomic policy continuity and micro/meso level reforms to treat the pandemic’s scars and get the economy back to its pre-pandemic growth path. The rest of the report dives into what we think would lend credibility to any forthcoming fiscal consolidation program as well as the election prospects in a time of Covid.

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