The Philippine economy is viewed to be on the path to further strong growth this year despite threading the needle between the threat of spiking COVID cases and opening the economy to more investments, IHS Markit reported in the Economic Outlook Briefing organized by the Board of Investments (BOI) held virtually on 26 January 2022.
According to Rajiv Biswas, Executive Director and APAC Chief Economist of IHS Markit, 2022 will be another year of global recovery, with around seven percent Gross Domestic Product (GDP) growth forecast for the Philippines helped by buoyant domestic demand. In the fourth quarter of 2021, the Philippine economy grew at a pace of 7.7 percent year on year, following a 6.9 percent growth year on year in the third quarter in the same year.
“For the Philippines, we are expecting rapid growth in 2022 due to further progress towards normalization of the economy,” Biswas said, highlighting that the expected strong economic growth is forecast to be driven by private consumption and government infrastructure investments.
A key factor that will improve the attractiveness of the Philippines economy over the next decade is the burgeoning size of the domestic consumer market, Biswas said. “The Philippines is projected to become one of Asia’s USD one trillion economies by 2033, just over a decade ahead”. According to Biswas, this will make the Philippines more attractive for foreign direct investments by multinationals and would attract new investment into sectors such as manufacturing and infrastructure. “Foreign investors will increasingly focus on the opportunities created by the fast-growing domestic consumer market in the Philippines, in addition to its attractions as a hub for producing manufacturing exports such as electronics,” he added.
In a recent statement, Socioeconomic Planning Secretary Karl Kendrick Chua reported that the full-year GDP last year was up by 5.6 percent, exceeding the Development Budget Coordination Committee’s target of 5 to 5.5 percent. In the last quarter of 2021, the country’s economy grew by 7.7 percent, indicating a “strong signal that the Philippines is on track to rapid recovery,” said the official.
Similar to the assessment of IHS Markit’s Biswas, Secretary Chua expressed optimism that in 2022, the pre-pandemic level would be surpassed.
Based on the IHS Markit Manufacturing Purchasing Managers Index (PMI) in December last year, the Philippine manufacturing sector remained in a solid position. The Philippine manufacturing PMI increased fractionally from 51.7 in November to 51.8 in December, and improvement was “partly” driven by a quicker rise in new orders received by domestic manufacturers.
Biswas shared that the impact of the pandemic is expected to slowly diminish during 2022 helped by progressive vaccine rollouts which would help to support firm positive growth of the global economy. This follows a rebound in economic growth around the globe in 2021, with a strong recovery for many markets, particularly in Europe, China, and the United States.
In IHS Markit’s January 2022 forecast, world economic growth globally is projected to increase by 4.2 percent this year, with economic growth in the Asia-Pacific region forecasted to rise by 4.8 per cent. Asia-Pacific’s industry sector data for 2021 signaled a strong recovery in many industry sectors, with financial services and consumer goods amongst the best performers.
In 2022, China is expected to experience a slowing down in its economic growth to a pace of 5.4 percent compared with growth of 8.1 percent in 2021. China’s GDP growth rate moderated to just 4.0% in the fourth quarter of 2021 due to its weakening residential construction and implementation of its lockdowns and restrictive measures hurting consumer spending and dampening retail sales, Biswas reported.
Additionally, the expert noted that the Philippines could attain an advantage with the rise of appetite for electric vehicles globally. Such a phenomenon could engender growing demand for batteries, of which nickel is an important component, and the Philippines is one of the leading producers of such minerals in the world. “The Philippines could also seek to develop greater value-added by attracting investments into manufacturing of EV batteries as well as into EV-related auto manufacturing,” Biswas said.
“Fundamentals are favorable for nickel due to strong long-term growth in global production of EVs and this is an exciting area for the Philippines,” Biswas said, highlighting that global battery demand is set to grow dramatically over the next decade.
On regional economic and trade ties, Biswas emphasized the important role of the Regional Comprehensive Economic Partnership (RCEP) to the Philippine economy, as it creates a platform for further trade liberalization in the Asia-Pacific region. The RCEP has already entered into force for 11 participating countries – Brunei, Cambodia, Laos, Singapore, South Korea, Thailand, Vietnam, Australia, China, Japan, and New Zealand. For the Philippines, the agreement is currently being deliberated in the Senate for concurrence as part of the domestic ratification process.
Aside from the RCEP, Biswas said, the Philippines could also accrue the benefits of joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) which would help the Philippines to access the large North American markets of Canada and Mexico.
The CPTPP is a comprehensive network of bilateral and regional trade agreements among its member economies: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. Its membership could expand with countries such as China and the United Kingdom (UK) expressing interest to join. In February 2021, the UK requested accession and four months later, the CPTPP Commission agreed to formally commence accession negotiations.
Trade Undersecretary and BOI Managing Head Ceferino Rodolfo meanwhile bared that the Philippines had written to the depository country of the CPTPP, New Zealand, and to the chair of the CPTPP last year, Japan, on the process of accession.
“We have conveyed our interest with the parties to the CPTPP through our bilateral engagements and so far, we have been receiving supportive messages from them,” Undersecretary Rodolfo said.
By joining RCEP, the Philippines will become more competitive as a manufacturing hub. According to Biswas, manufacturing supply chains are being diversified by companies from the US, European Union, and Japan because of the challenge of over-reliance on China coupled with its rising wage costs. There has already been a shift of production from China to other Asian manufacturing hubs to produce at the “lower cost,” said Biswas.
“The Philippines should benefit from this process of supply chain diversification,” he said, as the Philippines can compete among Asian markets in a bid to be a manufacturing location for many foreign companies as part of their diversification strategy.
Disruption to global manufacturers such as the insufficient supply of semiconductor chips will continue in 2022, he added.
Vaccination will help the global economy to recover as multiple studies attest to its effectiveness in lessening deaths and hospitalizations due to COVID in many countries. For the Asia Pacific region, IHS Markit noted a high level of second-shot vaccinations, particularly in Singapore and Malaysia, improving economic resilience.
Furthermore, countries in the Asia Pacific region are faring differently in the rate of booster rollout. Biswas said that the Philippines has made an early start with its booster rollout, but still has a long way to go to provide booster shots to a high share of the population, while Singapore and South Korea remain at the forefront of the booster rollout in the region. “Medical developments such as new tablets to treat COVID will also help to bring this pandemic under control this year,” he said. END