MANILA - A research organization of the Association of Southeast Asian Nations on Tuesday cut its growth forecast for the Philippines this year to 6.2 percent from an earlier 6.7 percent, saying the country is more vulnerable to new COVID-19 variants,

The ASEAN Plus 3 Macroeconomic Research Office (AMRO) new forecast is much lower than the 7 percent to 9 percent target of the government.

AMRO said it lowered its outlook on the Philippines because the country’s consumption-oriented economy is more vulnerable to new COVID-19 variants.

"If they are able to open up the economy more fully, that will help the services sector to recover more robustly. But at the same time because of the high dependence on services, if they have to close down for any reason, because of a more severe mutation of the virus, then the Philippines will be affected more,” said AMRO Chief Economist Hoe Ee Khor.

Look: AMRO cuts its 2022 growth outlook for the Philippines to 6.2 from 6.7. It notes, because the Philippines is services-oriented, it is more vulnerable to new and prolonged circuit-breaker lockdowns. But if it can open up, that same orientation provides a higher upside. pic.twitter.com/3EX57CYvMm

— Warren de Guzman (@wddeguzman) January 25, 2022

He added that the Philippines needs to further boost its vaccination rate so that it can keep the economy open.

Khor meanwhile said the Bangko Sentral ng Pilipinas can afford to keep interest rates low to help the economy as inflation is easing.

"BSP should hold until the recovery is stronger,” Khor said.

He noted that inflation was high last year, relative to other countries in the region, due to supply disruptions, the impact of African swine fever on food costs, and high oil prices.

“We have seen inflation start to come down, and already it is below the upper band of the inflation band, and we expect it to stay within the band this year and for next year as well,” Khor said.

While other countries are bracing for the impact of the US Federal Reserve unwinding its pandemic stimulus, Khor said the Philippines’ external position is “quite strong.”

“This will provide space for BSP to hold rates until the economic recovery is stronger. By the end of the year, maybe that will be the time the BSP will feel more comfortable in normalizing the interest rate, and even then it will still be relatively accommodative."

The BSP has said that as of the end of 2021 the Philippines has total gross international reserves of $108.89 billion. This is equivalent to 10.3 months worth of imports of goods and payments of services, and 8.8 times the Philippines’ short-term external debt based on original maturity.

The Fed has hinted that it may start hiking interest rates as early as March, and AMRO expects 3 to 4 rate hikes this year. The concern is will higher financing costs trigger chain reactions such as lower borrowing and slower growth, and capital flight from emerging markets to higher-yielding US securities.

“The Fed will be very cautious in terms of the tightening, even though they are concerned about inflation. They have already signaled very clearly through their governor there would be at least 3 tightenings this year, maybe 4. My sense is the FED will stick quite closely to the script," Khor said.

The Philippine GDP report for the fourth quarter and the full year 2021 is due out on Thursday, January 27. AMRO forecasts a growth rate of 4.9 percent. The Philippine government expects a growth rate of 5 to 5.5 percent.

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