THE Asean+3 Macroeconomic Research Office (AMRO) has raised the growth outlook for the Philippine economy, but their forecast remains below the government's target as Covid-19 pandemic remains a key risk.
“The Philippines economy is expected to recover robustly by 6.5 percent in both 2022 and 2023,” AMRO lead economist Siu Fung Yiu was quoted as saying in a statement released on Friday. “Continued fiscal support and a high vaccination rate will help keep the economy relatively open and sustain the recovery momentum.”
The 2022 growth forecast is an upward revision from AMRO's prior projection of 6.2 percent in its Asean+3 Regional Economic Outlook, which was released in January. However, it falls short of the interagency Development Budget Coordination Committee's (DBCC) aim of 7 to 9 percent.
In the meantime, its 2023 forecast is within the DBCC target range of 6 to 7 percent for that year. Furthermore, the projections are higher than the 5.6-percent gross domestic product growth seen in 2021.
AMRO also said public spending will continue to be the primary driver of growth in 2022, with private sector recovery gaining traction as the economy reopens, aided by improved economic prospects, increased confidence and favorable external demand.
It also forecasted a drop in headline inflation to 3.7 percent in 2022 and 3.3 percent in 2023, down from the high of 3.9 percent in 2021.
“However, a further spike up in global oil prices due to geopolitical conflicts poses upside risk to the inflation outlook in 2022,” the organization, however, cautioned.
It goes on to say that a possible rebound of Covid-19 infections is a critical risk to the recovery and that the deterioration of enterprises' balance sheets is a short-term danger to the banking sector's stability. However, the importance of these two risks may have diminished as a result of increased vaccination rates and improved economic activity.
As global financial conditions tighten, global interest rates and capital flow volatility are expected to climb in 2022, AMRO also warned.
The Philippine economy is well-positioned to weather the adverse impact, but the peso exchange rate may come under some pressure, it added.
“Some lasting damages caused by the pandemic have become clearer, the most adverse of which is on human capital,” AMRO noted, “raising the urgency to take action to build resilient, sustainable and inclusive long-term growth.”
As a result, a broadly neutral fiscal policy stance is justified, it said, because the private sector recovery is likely to grow more self-sustaining in the future. A fiscal consolidation strategy should improve budgetary sustainability, while without risking economic growth.
AMRO further said a gradual reduction of the fiscal deficit is deemed appropriate because the recovery is still in its early stages. However, once private sector growth has become self-sustaining, the pace of fiscal consolidation should be accelerated.
“The authorities should also continue to improve the efficiency of public spending programs, while enhancing revenue collection,” it added.
AMRO also said the Bangko Sentral ng Pilipinas should maintain its accommodative monetary policy in 2022 to assist the recovery, with the possibility of tapering as the recovery gains steam and the production gap narrows.
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