S&P Global Ratings flags high inflation as key risk for PH economic recovery

MANILA - The Philippine economic recovery post-COVID is expected to start off with a near 10 percent rebound in GDP growth this year, but there are few roadblocks to growth.

According to credit ratings agency S&P Global Ratings, there are still "relatively broad COVID-19 epidemic in the Philippines which itself can, and will also have and continue to, have a cooling impact on economic activity."

• PH economy seen growing up to 13 percent in Q2 due to 'low base effect'

"That is part of the story too though but perhaps not as large a component as the containment measures themselves," said Andrew Wood, Director for Sovereign ratings at S&P Global.

Vincent Conti, Senior Economist for Asia-Pacific at S&P, said prolonged lockdowns and high inflation would also be a serious downside risk.

“If restrictions are in place much longer than what we are currently seeing, that does put a big dampener on the growth prospects of the economy. The other risk that would compound this, would be currently the inflation that Andrew mentioned," Conti explained.

"They are supply side in the sense they are driven by food pretty much, pork and vegetables, and they are transitory. But they do weigh on the disposable income that is left for households to spend on other types of consumption at a time when things are already very difficult," he said.

Wood noted the inflation in the Philippines is actually quite high compared to other countries.

“There are inflationary concerns all around the world at the moment, and these are at time roiling financial markets, and if we look at this chart, we are seeing a bit of an interesting trend around the world where some indices are starting to pick up. But perhaps the most notable uptick here amongst these peers, is really that line for the Philippines," he said.

S&P Global still expects the Philippine economy to do well this year.

"The good news is we see a strong recovery kicking off in 2021. In terms of how our forecasts are shaping up, we are looking at 9.6 percent growth this year. I think it is very clear that it's almost a mirror image of the contraction we had last year, of just over 9.5 percent," Wood said.

The Philippines' gross domestic product contracted anew in the fourth quarter shrinking 8.3 percent to bring the full year 2020 growth to -9.5 percent, the Philippine Statistics Authority said earlier.

• PH posts worst GDP contraction since World War 2 with -9.5 pct growth rate in 2020

"We see growth remaining somewhat above potential even in 2022 and 2023 as well as the economy catches up somewhat," he added.

The Philippines' central bank meanwhile said inflation in the country might have hit over 5 percent last February.

• Philippine economy seen contracting again in Q1, return to positive growth in Q2

The PSA will release the February inflation data on Friday, March 5.

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