Slower growth seen in Q3 with return of lockdowns, easing of base effects

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Metro Manila (CNN Philippines, November 5) — The Philippine economy possibly grew in the third quarter of this year but at a milder pace than the previous three months with quarantine measures tightening anew, according to analysts.

CNN Philippines polled 14 economists on the country’s economic performance during the July-September period, with forecasts ranging from 3.5% to 10.4%. The projections averaged 5.2% — a big leap from -11.6% posted the year before. However, this is milder than the second quarter’s 12% growth based on revised Philippine Statistics Authority estimates.

After months of eased quarantine rules, the National Capital Region returned to a hard lockdown in August as authorities aimed to contain the Delta variant-driven surge in infections. The metropolis eventually eased to Alert Level 4 in the latter half of September.

“The shift to the alert-level type quarantine status in the NCR was crucial to the slight rebound in September, causing economic activity to subsequently rise. Nevertheless, domestic demand was still subdued with much restrictions still in place,” said UnionBank chief economist Carlo Asuncion, who projects a 4.6% growth for the three-month period.

ANZ Research economist Debalika Sarkar — who expects economic output to expand by 4.7% — also noted the country’s “slow” vaccination progress atop the said surge interrupted its nascent economic recovery.

By end-September, over 21 million Filipinos have been fully inoculated against the disease, yielding a coverage rate still below 30%.

Some market watchers also noted how base effects could still weigh on the possible outturn for the quarter, albeit not as much as they did three months prior.

“Part of this is natural, as the favorable base effect that lifted the Q2 print will start to unwind from here on out,” said Pantheon Macroeconomics senior Asia economist Miguel Chanco of his 3.5% forecast, which he referred to as a “slowdown” from the second quarter.

RCBC chief economist Michael Ricafort also cited fading low denominator effects for his 6.5% forecast, in contrast to the double-digit pace observed from April to June.

Meanwhile, BPI lead economist Emilio Neri Jr. said he was “relatively optimistic about investment given a robust infrastructure spending, consistent with our strong imports during the period.” He noted “solid” remittances also drove consumption that contributed to a 5.6% growth that he projected.

Still, Neri cautioned about inflation, which he said remained "elevated", possibly offsetting the possible uptick in private spending — a view shared by ING Bank senior economist Nicholas Antonio Mapa and Oxford Economics assistant economist Makoto Tsuchiya, whose third quarter growth projections are 3.8% and 4.3%, respectively.

Growth prospects this 2021 and beyond

With economic expansion possibly having decelerated in the third quarter, some economists aren’t as upbeat looking forward either.

Moody’s Analytics associate economist Sonia Zhu expects full-year GDP growth to settle near 4% this year, the said pace being the lower end of the government’s target band for 2021.

While the Philippines has now pivoted to granular lockdowns and freer movement for fully vaccinated individuals, she notes a “huge proportion of household savings lost during the pandemic will weigh heavily on private consumption in the near term.”

Tsuchiya also said momentum may pick up in the fourth quarter with the drop in cases and looser restrictions, but annual growth could still fall short of the government’s 4-5% target band at 3.4%.

“[T]he Philippine economy may very well remain in recession as overall economic activity is subdued after a stark drop in overall GDP levels in 2Q 2020,” said Mapa, forecasting an annual 3.7% growth this year despite the relaxation of quarantine rules.

Meanwhile, Security Bank chief economist Robert Dan Roces expects gains like the progress in the COVID-19 vaccination drive, manufacturing PMI [pls spell out PMI] in expansionary mode, positive lending growth and sustained uptick in remittances to drive economic growth for the remainder of 2021.

“Thus, the upper end of the government’s growth target is doable,” said Roces, who projects the economy grew by 10.4% in the third quarter.

Capital Economics emerging Asia economist Alex Holmes holds a similar optimistic view for this quarter, noting the sharp decline in cases and the economic hub National Capital Region’s shift to Alert Level 2 could allow a “decent rebound in private consumption” and strong growth.

He expects an economic expansion of 4% in the third quarter — pulling the full-year figure possibly near the middle of the government’s target band.

While Holmes and Tsuchiya acknowledged more relaxed restrictions could benefit recovery entering 2022, they also warned the Philippines remains vulnerable to pandemic-related risks, because its low vaccination rates are still relatively low compared to the rest of the region.

The Philippine Statistics Authority will report on the economy’s performance during the third quarter on Nov. 9.