The economy of the Philippines is projected to recover to around 6.5% for this year—largely depending on the re-opening of the domestic economy and containment of COVID-19 infections said an official of HSBC on last Wednesday, January 20.
This growth ouytlook is the lower end of the government’s 6.5-7.5% target for this year.
In a virtual briefing, HSBC Managing Director and Chief Market Strategist for Asia, Cheuk Wan Fan, said the recovery is expected after a projected 9.7% contraction as measured by gross domestic product (GDP) in 2020.
Further, although lagging compared to other Asian countries because of the pandemic’s impact, Fan forecasts the Philippine economy to be in tune with the expected cyclical recovery in the region.
“Recovery of the Philippine economy will largely hinge on the containment strategy in the fight against the Covid pandemic,” she said.
With the expected economic recovery, Fan discounts any cut in the Bangko Sentral ng Pilipinas’ key policy rates this year after the 200 basis points reduction last year.
However, Fan forecasts as much as 200 basis points slash in banks’ reserve requirement ratio, similar to what monetary authorities implemented last year, in the second half of this year.
Business sentiments in 2020, Fan noted, were hit by the pandemic however, optimism is expected to markedly improve this year, along with consumer confidence as the gradual re-opening of the economy continues, the Brexit, and the improvement of the employment situation.
“This being said the focus will be more on fiscal stimulus,” she said, citing the importance of government spending to lift domestic output.
She also predicts the peso to continue to strengthen against the US dollar and close this year at 46-level from the current 48-level.
She attributed this forecast to the continued improvement of the country’s current account surplus, the depreciation of the US dollar and the continued inflows of overseas Filipino workers’ remittances.