The economy faces a bumpier race to recovery

The Philippines’ economic recovery will remain at risk if it cannot accelerate mass immunization and contain the spread of COVID-19 while budget support to vulnerable sectors hard hit by the pandemic-induced recession remains meager, two groups said on Friday. for economic thinking.

“There is still a chance that the Asia-Pacific region can recover from its current wrestling match with COVID-19 and the Delta variant. The next six months will be filled with uncertainty and volatility, as parallel efforts will be needed across the region to speed up the pace of vaccination as well as improve testing and tracing of the coronavirus given the high transmissibility of the variant. Delta, ”said Moody’s Analytics, Head of Asia. – Pacific Economist Steven Cochrane and Senior Economist Katrina Ell said.

“China, Japan, Taiwan, South Korea and Singapore will not be able to relax their efforts, and others like India, Indonesia, the Philippines and Thailand will have to step up theirs on both fronts,” Moody’s Analytics said.

Moody’s Analytics said those who put such programs in place would face a relatively smooth path to a global economic recovery.

“Those who do not have effective policies in place will face a much more bumpy race,” he warned.

In the case of the Philippines, Moody’s Analytics noted that although it had imposed economically devastating lockdowns, particularly in Luzon which accounted for most of its gross domestic product (GDP), these strict movement restrictions had “little effect.” impact ”on the slowdown of COVID- 19 contaminations.

The laggard of the region

As for mass vaccination, he said the Philippines, Indonesia, Thailand and Vietnam remained the slowest in the region.

“Currently, the Philippines lags the region with new daily COVID-19 cases still near a record high, continued quarantines in the greater Manila area, and modest budget spending to support national spending and the good. -to be. “

At the end of the first quarter, the Philippine GDP was only around 90% of its peak at the end of 2019, and is therefore expected to be the last to return to pre-pandemic levels in the region.

Weak link with supply chains

While exports from most neighboring economies are now benefiting from the global economic recovery, overseas sales of Philippine-made products have yet to regain pre-pandemic volumes because “the Philippines is the one of the countries in the region that is least linked to global supply chains, ”Moody’s Analytics mentioned.

“The Philippines, which has struggled to engage in the export economy, still has a positive current account because imports are so low. Two factors are currently limiting its imports: Extensive lockdowns limit consumer spending and have temporarily halted some large infrastructure projects that require many imported components. The two factors will reverse once the economy can function more normally, ”added Moody’s Analytics.

As such, Moody’s Analytics said the Philippine currency looks strong enough, but as its import flow would return to a more normal trend, its current account could likely relax, as could the peso.

Moody’s Analytics also warned that as the United States and Europe begin their transition to policy standardization, “India, Indonesia, the Philippines and Thailand may face capital outflows and weaker exchange rates if accommodative policies are to remain in place as investors begin to seek higher yields. in developed economies that are on the mend.

In a separate report, Deutsche Bank Research said “The Philippines remains vulnerable to COVID-19 as supply issues have limited vaccination.”

“Downside risks to growth continue to dominate, but may not be significant, although the country’s vulnerability to the pandemic remains high,” said Michael Spencer, chief economist at Deutsche Bank. INQ

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