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The near-term outlook for the Philippines
economy has been impacted by a sharply rising wave of new COVID-19
cases since mid-March 2021. This is expected to constrain the pace
of economic recovery in the near-term, as strict pandemic control
measures have been imposed in Metro Manila and other surrounding
areas badly impacted by the latest surge in pandemic cases.
Escalating new COVID-19 cases dampens
recovery
The Philippines economy suffered a deep
recession in 2020 due to the impact of the COVID-19 pandemic, with
GDP contracting by 9.6% year-on-year. This was the largest annual
decline ever recorded since National Accounts data series for the
Philippines commenced in 1946.
Household final consumption expenditure fell
by 7.9% y/y in calendar 2020, while gross capital formation
contracted by 34.4% y/y. Some sectors of the economy recorded
severe declines in output, with the transport and storage sector
recording a 30.9% y/y decline in output in 2020, while
accommodation and food services output slumped by 45.4%.
Although economic activity had improved during
the second half of 2020, with positive quarter-on-quarter GDP
growth recorded in the fourth quarter of 2020, the escalating
pandemic in March and April 2021 has dampened near-term recovery
prospects.
Reflecting the global slump in international
trade, exports of goods and services fell by 16.3% y/y in 2020. The
Philippines export sector has also remained weak, with exports of
goods down 5.2% y/y in January 2021. However, despite the large
decline in exports in 2020, the current account surplus reached a
record high of USD 13 billion or 3.6% of GDP, boosted by the sharp
slump in imports due to the severe contraction in domestic demand.
In March, the Philippines central bank, Bangko Sentral ng Pilipinas
(BSP), has revised up its current account surplus projection for
2021 to USD 9.1 billion, or 2.3% of GDP.
An important stabilizing factor for the
Philippines economy has been overseas worker remittances by
Filipinos working abroad, which remained quite stable during 2020,
down only 0.8% y/y, and equivalent to around 10% of GDP. However,
an estimated 400,000 Filipino workers were repatriated during 2020
as a result of job losses in their host countries, raising concerns
about the impact on remittance flows during 2021. Remittances sent
home by workers are an important factor supporting domestic
consumer spending in the Philippines.
Due to the severe escalation in daily new
COVID-19 cases since mid-March 2021, the Philippines government has
imposed a range of restrictive measures to try to contain the
pandemic. A one-week lockdown was announced for Metro Manila and
four surrounding provinces on 29th March but was extended for at
least a further week on 5th April. The total number of people
impacted by the new lockdown measures are estimated at around 26
million, or around one-quarter of the total population of the
Philippines, as well as being the largest economic region of the
Philippines economy.
Manufacturing production contracted by 9.8%
y/y in 2020, reflecting significant disruption to manufacturing
output during the pandemic-related lockdown and restrictions on
retail trading in Q2 and Q3 2020.
Although economic conditions had been
improving the fourth quarter of 2020 and during the first quarter
of 2021, the recent severe escalation in the pandemic has created
renewed uncertainty about the momentum of economic recovery in the
near-term. The IHS Markit Philippines Manufacturing PMI fell to
52.2 in March, down fractionally from 52.5 in February, but
continuing to post above the 50.0 neutral value that separates
expansion from contraction.
The latest manufacturing survey for March
showed evidence of rising price pressures. Companies indicated that
higher costs incurred by firms were often attributable to materials
shortages. A sustained increase in client demand, however, allowed
some firms to partially pass on rising costs.
Supply chain pressures continued to build in
March as lead times for inputs lengthened. Firms participating in
the survey continued to cite freight delays as driving the
deterioration in vendor performance, with delivery times
lengthening markedly. As such, firms sought to increase their
inventory holdings to minimize future shortages due to delays.
Progress of vaccine
rollout
As a developing country with a population of
108 million, the Philippines confronts significant challenges in
vaccinating its population with COVID-19 vaccines due to
difficulties in obtaining sufficient vaccine supplies as well as
the logistical problems of implementing a large-scale vaccination
rollout nationwide. The COVID-19 vaccination program began on 1st
March 2021, after the arrival of shipments of China's Sinovac
vaccine. The Philippines has contracted to acquire 25 million doses
of the Sinovac vaccine, with one million already delivered and a
further 1 million doses provided as a gift by the Chinese
government. The Philippines is also due to receive 9.3 million
doses of the Oxford/AstraZeneca vaccine through the global COVAX
facility, although so far 525,600 doses had been delivered to the
Philippines by the end of March.
The COVAX facility, which is a global vaccine
sharing initiative, has faced delays in receiving AstraZeneca
vaccine supplies from the Serum Institute of India, a key
manufacturer of the AstraZeneca vaccine. This is because India has
also faced a sharply accelerating COVID-19 wave similar to the
Philippines, and the Indian government has placed temporary
restrictions on export of COVID-19 vaccines in order to accelerate
vaccination of the Indian population.
The Philippines government is negotiating with
seven global COVID-19 vaccine makers to secure sufficient supplies.
A contract for 13 million doses has been agreed with Moderna, with
a further contract for an additional 7 million doses also having
been subsequently negotiated, providing a total of 20 million
Moderna vaccine doses.
The Philippines government had planned to
vaccinate 70 million persons by end-2021, but so far only 827,000
persons have received their first dose vaccination by 5th April
2021. A key problem confronting the Philippines, like many other
developing countries, is that it is relying on imported vaccine
supplies and is therefore vulnerable to supply disruptions due to
"vaccine nationalism", as some nations with vaccine production
facilities prioritize supplies to their own domestic populations
due to the mounting human toll of the pandemic.
Philippines economic outlook for
2021
While the Philippines economy is still
expected to show a positive growth rebound in 2021, the near-term
outlook for the Philippines economy has been dampened by the
sharply rising wave of new COVID-19 cases since mid-March 2021.
This is expected to constrain the pace of economic recovery in the
near-term, as strict pandemic control measures have been imposed in
Metro Manila and other surrounding areas badly impacted by the
latest surge in pandemic cases. Vaccine rollout in the Philippines
has also been constrained by lack of sufficient supplies of
imported.
Rajiv Biswas, Asia Pacific Chief Economist, IHS
Markit
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
