MANILA - Fitch Solutions on Thursday downgraded its growth forecast for the Philippines to 4.2 percent from an earlier outlook of 5.3 percent saying the country continues to struggle amid new COVID-19 outbreaks.
Fitch Solutions, which is an affiliate of Fitch Ratings, said the Philippines will face continued disruptions from the COVID-19 pandemic given its slow pace of vaccinations and difficulties containing outbreaks.
“With only 9.9 percent of the population fully vaccinated as of August 5, the country remains a long way off from reaching herd immunity such that it can ease preventative measures more significantly,” Fitch Solutions said.
The report from the analytics firm follows the release of second quarter gross domestic product figures which showed the economy expanding 11.8 percent during the period year-on-year, but shrinking a seasonally adjusted 1.3 percent from the first quarter.
“We anticipate weaker household consumption and fixed investment, while fiscal support will likely be constrained by public debt concerns,” Fitch said.
Fitch Solutions said it lowered its expectations for domestic activity through the second half of the year as Metro Manila went into lockdown this month, and amid the heightened threat from the more infectious Delta variant.
After shrinking 7.9 percent last year, household consumption is expected to grow 3.5 percent this year given subdued retail activity, which was already low even before the August lockdown, Fitch said.
“The Bangko Sentral ng Pilipinas (BSP)’s Retail Index has shown activity in contraction since January, standing at 49.8 in June (below 50 signals a contraction),” Fitch noted.
The forecast growth for gross fixed capital formation, Fitch said, was also lowered to 9 percent from 10 percent “given spare capacity and continued disruptions to investment.”
“Output is 9.5 percent below end-2019 levels, with capacity utilization at 67.8 percent in June (it was averaging around 83% before the pandemic),” Fitch noted.
The government is targeting GDP growth of between 6 to 7 percent this year, following the record 9.6 percent contraction in 2020.
To hit the 6 percent target, GDP needs to grow 8.2 percent in the second half, the head of the state statistics bureau said on Tuesday.
"On the other hand, if we want to hit 7 percent, then the economy should grow by 10.2 percent. These are all based on the computations of the PSA," said National Statistician Dennis Mapa during the release of the second quarter growth report.