The government of the Philippines maintained health restrictions linked to the pandemic for longer than the average period in emerging countries, with some regions still under lockdown until April 2022. The rebound in activity is not yet finished, and the strength of consumer spending, still supported by remittances, should help to offset the effects of higher inflation and the slowdown in global growth. Economic growth is expected to slow in 2023, but should remain solid. However, the after-effects from the crisis and health measures are weighing on the medium-term outlook.
The health crisis is barely improving in the Philippines. After a particularly severe second wave, the number of new Covid-19 cases seems to have levelled off, albeit at a high level. Yet the full vaccination rate is very low, which means that the tight health restrictions which must be kept in place are weighing on domestic demand and the tourism sector. After contracting by more than 9% in 2020, GDP should rebound moderately in 2021. Even so, the country still has high growth potential thanks to the reforms undertaken over the past decade, which are paying off.
The coronavirus crisis has hit a fast-growing economy, which expanded by more than 6% year-on-year in H2 2019 and looked set to continue at the same pace in 2020. The pandemic and the very strict lockdown imposed by the Duterte government will cause all the engines of growth to seize up: production will stop in the country’s economic centre, the fall in domestic demand will be exacerbated by reductions in remittances from workers abroad and losses in the informal economy, tourism will collapse and exports of goods and services will follow suit. This is a substantial shock, but the strong macroeconomic fundamentals and the modest level of government debt give the authorities scope to introduce support measures.
With a population of about 100 million people, the Philippines, which comprises more than 7,000 islands, is the 12th most populous country in the world. An additional 12 million Filipinos live overseas, representing one of the world’s largest diasporas. Economic transformation efforts have been effective over the last decade, and the country enjoyed macroeconomic stability, robust economic growth, a solid external financial position, moderate fiscal deficits and declining government debt-to-GDP ratios. The Philippines have been hard hit by the Covid-19 crisis. However, real GDP is projected to continue to grow strongly in the medium term (above 6%), supported by domestic demand. New challenges have emerged, as the external environment has become less growth-supportive, and overheating risks have emerged as the current account deficit continues to widen and credit growth remains strong - although from a low base. In addition, poverty and inequality challenges remain.
