OUTLOOK FOR THE PHILIPPINES IN 2022
By Arvi Perez (Cornerstone Philippines)
2021 Review
The Philippines ended 2021 with a GDP growth of 5.6%, which was slightly better than the government forecast of 5.5%. COVID continued to wreak havoc on the economy as lockdowns were maintained to contain the Delta variant and Omicron outbreaks towards the end of the year. As of November 2021, the unemployment rate had improved to 6.5% compared with 7.4% in October. The unemployment rate hit a record high of 17.6% in April 2020, when the government implemented a strict lockdown to contain the pandemic.
The economic outlook for 2022
The Philippine government expects a 7-9% GDP growth coming from a low base and fuelled by election spending during this election year. The economy has shown resilience despite COVID and is reviving quickly with the domestic economy opening up and household consumption resuming. Foreign banks like Standard Chartered forecast GDP to grow by 7.5%, while ING Bank predicts a more conservative 5.3% growth. So far, the Philippine Central Bank has been very accommodating during the pandemic, keeping interest rates low to bolster the economy. However, rates will be vulnerable to March’s anticipated US Fed rate hike. This could slow down bank lending.
Presidential Elections in May
National elections are scheduled on May 9 for all positions, particularly for the successor to President Rodrigo Duterte. Election spending is expected to provide a boost to the economy. Based on current survey results, the son of former dictator Ferdinand Marcos, Bongbong Marcos, as well as the daughter of the incumbent president, Sara Duterte, are tipped to win, which could ensure the continuity of programs. This would be the first time a President is elected with a significant majority in tandem with a Vice-President to boot. Half the Senate and the whole Lower House are also up for election.
Economic recovery
With the Omicron surge subsiding as of February, the Philippines is slowly opening up with lockdown levels declining and restrictions on foreign tourist arrivals being lifted. Air travel is slowly reviving, with airlines calling back furloughed pilots and other employees. With the lifting of lockdowns, businesses in malls and other retail centers are expected to finally pick up after more than two years.
The fiscal handicap for incoming Administration
The government had to resort to borrowing to fund a huge fiscal deficit as government revenues dried up due to the lockdowns and closure of borders to tourism. As a result, the debt-to-GDP ratio rose sharply to 60.5% by the end of 2021. It is expected to remain above 60% until 2023. The next Administration will inherit a significant amount of debt which could constrain the ability of the succeeding president to bolster the economy. Growth is expected to be driven next year by the continuation of the ambitious infrastructure spending by the government. About a fifth or P1.019 trillion of the P5-trillion national budget this year will go to capital outlays, including infrastructure spending.
Recent laws passed
The recent passage of various economic reform laws could spur investments. The Electric Vehicle Industry Development Act, the Extended Producer Responsibility Law and the much-needed Amendment to the Public Service Act (which will open several industries to foreign capital), could lead to more foreign investments and more jobs.
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