MANILA - Fitch Solutions on Wednesday said it revised upwards its 2021 economic forecast for the Philippines to 4.5 percent from 4.2 percent.

This was after the country's gross domestic product (GDP) grew 7.1 percent in the third quarter, beating expectations. On a seasonally adjusted quarter-on-quarter basis, the GDP grew 3.8 percent during the period.

"We at Fitch Solutions now forecast the Philippine economy to grow by 4.5 percent in 2021 and 6.5 percent in 2022, revised from 4.2 percent and 6.8 percent respectively," Fitch Solutions said in a statement.

"Recovering domestic activity will be the key driver of the economy moving forward; however, low vaccination rates and less supportive external conditions keep risks to growth tilted to the downside," it added.

For 2022, the tamed economic growth forecast is 6.5 percent from the earlier 6.8 percent, it said.

The delayed recovery of the tourism sector, air traffic which is still only at 25 percent, and the lack of tourists, are among the headwinds for growth next year.

But there are signs of continued recovery in the fourth quarter this year, with an expected increase in domestic activity as the government's vaccination drive gains pace, Fitch Solutions said.

The government estimates growth this year to settle within 4 to 5 percent. Socioeconomic Planning Secretary Karl Chua earlier said the economy could return to its pre-pandemic level in 2022.

Fitch Solutions however noted that the country remains vulnerable to COVID-19 outbreaks due to disparities in regional vaccine rollout as well as the lower efficacy rates of vaccines administered.

As of Nov. 9, only 39 percent of the government's 77.1 million target have been fully vaccinated.

Sinovac from China makes up the bulk of the vaccines that arrived in the country, whether procured or donated. Using vaccines with lesser efficacy means there is greater need for booster shots, Fitch Solutions said.

"Thus, in the near term, further disruptions could weigh on the pace of the economic recovery, and the prospects of a revival in the country’s
tourism sector remain dim," it said.

• Chile study shows first Sinovac shot alone not protective

'NORMALIZING' MONETARY POLICY

Fitch Solutions said it expected the Bangko Sentral ng Pilipinas to normalize monetary policy by hiking key interest rate by 75 basis points in 2022.

The BSP has kept the country's overnight borrowing rate at its lowest level of 2 percent for about a year now. It has 2 remaining monetary policy-setting meetings for the rest of the year.

BSP Governor Benjamin Diokno earlier said tightening the monetary policy is unlikely for the rest of the year.

• No signs BSP will raise rates in near term: Moody's Analytics
• Bangko Sentral eyes keeping interest rates steady for rest of 2021: Diokno

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