By Ben O. de Vera | Philippine Daily Inquirer
November 22, 2021
MANILA, Philippines — Investment banking giant Goldman Sachs expects the Philippine economy to grow the fastest in Asean (Association of Southeast Asian Nations)-5 next year, despite some uncertainty to be wrought by the “wide open” 2022 presidential elections.
In a Nov. 18 report, Goldman Sachs Economics Research projected the Philippines’ gross domestic product (GDP) growth to hit 7.3 percent, within the government’s 7 to 9 percent target.
In Asean-5, the Philippines’ estimated GDP expansion in 2022 would exceed Malaysia’s 6.6 percent, Indonesia’s 5.1 percent, Singapore’s 4.3 percent, and Thailand’s 3.6 percent.
Meanwhile, Goldman Sachs’ 2021 growth forecast for the Philippines of 4.9 percent would be the second-fastest in Asean-5 after Singapore’s 6.5 percent. Indonesia’s GDP was expected to grow by 3 percent this year; Malaysia, 2.8 percent; and Thailand, 0.9 percent.
Goldman Sachs said it had a more conservative estimate of the Philippines’ pandemic-induced output gap. “Lower medium-term output losses than we currently factor in are an upside risk to GDP growth as the economy reopens. As virus restrictions are scaled back, public investment accelerates and the drag from higher commodity prices eases modestly, we expect real GDP growth to accelerate to 7.3 percent in 2022.”Goldman Sachs nonetheless flagged possibly bigger output losses inflicted by the COVID-19 lockdowns in the Philippines, which were among the longest and most stringent worldwide, plus “limited” fiscal stimulus that slashed savings of households as well as firms.
Citing a recent International Monetary Fund (IMF) research, Goldman Sachs noted that “medium-term output losses in emerging markets following large, extended recessions can be quite significant especially for economies with relatively small fiscal responses compared to the size of the shock, and/or those with a higher reliance on tourism or high-contact services.”
The latest Asian Development Bank (ADB) data showed that the Philippines’ war chest against COVID-19 amounted to $30.72 billion as of mid-November, equivalent to 8.7 percent of 2020 GDP.
Also, “another virus resurgence if the economy reopens too soon prior to achieving sufficiently high effective protection rates, and/or higher commodity prices, are downside risks to growth in 2022,” Goldman Sachs said.
Goldman Sachs noted in a separate Nov. 19 report that the Philippines was lagging behind in Asia-Pacific in mass vaccination against COVID-19, with only 34 percent of the population jabbed with the first dose as of mid-November, compared with Singapore’s 86 percent, Malaysia’s 78 percent, Vietnam’s 66 percent, Thailand’s 65 percent, and Indonesia’s 48 percent.
Since 2022 is an election year, Goldman Sachs said there would be “higher levels of political uncertainty around the macro policy environment.”
Goldman Sachs described the presidential race to be “wide open at this point, with four candidates polling at broadly similar levels.”
Gunning for the presidency next year are Vice President Leni Robredo, Sen. Panfilo Lacson, Sen. Manny Pacquiao, Manila Mayor Francisco “Isko Moreno” Domagoso, and former Sen. Bongbong Marcos.
“While the policy platforms of each candidate will become clearer in coming months, medium-term structural constraints such as maintaining a fiscal improvement path (while still bridging existing social and physical infrastructure gaps) and short-term policy priorities such as COVID-19 management should continue to drive policy priorities over the coming year,” Goldman Sachs said.
Goldman Sachs said sustained infrastructure expenditures under the ambitious “Build, Build, Build” program would aid economic growth in 2022, but the transfer of more public services to local governments due to their bigger budgets when the Supreme Court’s Mandanas-Garcia ruling is implemented next year would be a risk to government spending due to local government’s weak budget execution capacity.
Goldman Sachs also expects easing inflation—seen to return within the government’s 2 to 4 percent target range next year as food supply issues ease —“to allow a more patient withdrawal of accommodative policy settings by the BSP [Bangko Sentral ng Pilipinas].”
“As activity recovers, core inflation rises, and the Fed begins to hike policy rates, we expect the BSP to begin withdrawing liquidity using its term deposit facility and BSP security auctions in the second half of 2022, with one 25-basis point (bp) policy rate hike in the fourth quarter of 2022,” Goldman Sachs said.
Goldman Sachs added that it was “bearish” on the Philippine peso next year, as the current account deficit was estimated to widen to 1.8 percent of GDP in 2022 from the projected 0.7 percent this year as imports of capital equipment and consumer goods recover amid economic reopening.
“Being a large net energy importer (net energy imports were likely about 3.6 percent of GDP this year), further increases in oil prices will also weigh on the current account. We estimate that every $10 per barrel increase in oil prices, if sustained, can push the net energy deficit higher by about 0.3 percent of GDP on average,” it said.
As for the stock market, Goldman Sachs said that while some Asean markets have been upgraded to “overweight,” “our equity strategists remain neutral on Philippine equities.”