Bernardo M. Villegas
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Next Six to Twelve Months (Part 1)

            Prospects for the Philippine economy in the next six to twelve months can still be bright, despite the return to Level 3 during the first half of January 2022 provoked by the surge of infection and hospitalization rates resulting from greater population mobility that accompanied what has been called revenge spending.   As Catholic priest and scientist Fr. Austriarco assured the public in a recent briefing, we now have a high population immunity due to higher vaccination rates coupled with the infection rates.  The Omicron variety is proving to be less dangerous despite its greater transmissibility.  Countries which have experienced the spread of the Omicron variant have low hospitalization and death rates.  I have anecdotical cases of entire families being infected after their Christmas celebrations but all of whose members, both young and old, recovered quickly with only few of them requiring hospitalization.

           My usual optimistic self makes me believe what Tyra Grove, the chief epidemiologist at Denmark’s State Serum Institute, recently reported.  She said that the appearance of Omicron could spell the end of the pandemic in two months. According to her, the highly infectious Omicron variant appears milder, and therefore more people will be infected without having serious symptoms.  We have already verified this in the first days of January 2022 among entire families infected after the Christmas holidays.   As a result, this will provide a good level of immunity in the population, as Fr. Austriarco already observed even earlier. 

           The Philippines also has the added advantage of having a very young population.  Rates of hospitalization and mortality increase the larger the population of senior citizens.  Another distinct advantage we have in avoiding a serious surge of the pandemic is that Filipinos have not fallen into complacency as has happened in the U.S. and European countries.  Filipinos at all socio-economic levels continue to wear masks, keep social distance and practise hygienic measures such as washing hands.

           Given the greater mobility that is expected to be allowed by less strict lockdowns and which may even increase as we move towards Holy Week and the election period, our consumption-driven economy can be expected to recover its 6 to 7% growth path in 2022.  Even with the ban on public works during the months immediately preceding the May elections will not result in a significant slowdown of construction activities, considering the massive reconstruction efforts that will happen in the six regions in the Visayas and Mindanao that were devastated by Typhoon Odette.  The billions of pesos that are part of the calamity funds incorporated into the 2022 budget as well as unspent portions of the 2021 budgets will be supplemented by the increase in the IRA allotments resulting from the Mandanas-Garcia ruling.  As long as the LGU heads in the affected provinces and municipalities by Typhoon Odette will have the sense of prioritizing the reconstruction and rehabilitation of damaged infrastructures, buildings, and houses, the first quarter of 2022 will see a double-digit growth in the construction sector.

           Also expected to contribute to a higher growth of consumption expenditures which account for 70% of GDP is the possible return of more students to the classrooms  as well as employees to their work places once it has been established that the ongoing surge is a milder form of former surges.    Even if there will be a a permanent trend towards hybrid modes of education and office work, there will be surely an increase in  the demand for transport services, restaurant services  and other amenities  that will be required in those days during which students will be reporting physically to their classes or workers to their respective offices.   This greater mobility of the population can reintroduce the so-called revenge spending that happened during the holidays.  Also expected to contribute to an increase in consumer expenditures are the numerous religious festivities and secular fiestas that usually happen during the first half of the year, such as those related to the celebration of Holy Week and the many traditional festivities during the summer months.

           One can also expect an acceleration of the rise in remittances from the Overseas Filipinos Workers to the affected areas.  We have already seen how generous the OFWs were during the height of the pandemic.  The first eight months of 2021 already saw a more than 5 % year on year rise in OFW remittances.  In fact, the peso started to appreciate towards the end of the year because of a greater flow of dollars from these remittances.  One can only expect that the Christmas-related “padala” from the OFWs will be supplemented by extra amounts for tiding over the relatives as they recover from the damages suffered during the super-typhoon, especially in their rebuilding of their damaged homes.   In the European countries suffering from new surges of the pandemic owing to the Omicron variety, the demand for Filipino nurses, care givers and other health workers is expected to rise.  These much-appreciated workers from the Philippines can be the sources of larger OFW remittances.  These large remittances, however, will not be big enough to prevent some depreciation of the peso to the P50 to P51 level by the end of 2022 as imports rise as a result of larger construction expenditures and higher consumption levels.

           The BPO-IT sector will suffer a temporary hit from the destruction of homes and office buildings and the disruption of electricity, water and telecom utilities in major regions in Central Visayas, Western Visayas, Northern Mindanao and Eastern Visayas.  From previous experiences with natural calamities and with the pandemic itself, however, this sector has demonstrated admirable resilience and flexibility so that I see it bouncing back very quickly because its major assets have to do with the human resources.  A good number of BPO-IT enterprises are footloose and can transfer operations to other regions that were left relatively unscathed by Odette, such as CALBARZON, Central Luzon, Northern Luzon and Southern Mindanao. I still expect the BPO-IT sector to grow its revenues for the whole year of 2022.

           What cannot be avoided is another decline in the value added by agriculture as the super-typhoon will lead to huge crop losses in at least the first half of 2022 because of the major damages to standing crops as well as to infrastructures needed for productivity in the farming and fisheries sector.  Providentially, however, agriculture and fisheries contribute less than 10% to total GDP.  What could still contribute to GDP growth will be the other components of agribusiness, such as logistics, processing, manufacturing, and retailing.  This would require further liberalization of food imports, such as those of rice and pork, even if only temporarily since it would take some time for local producers to increase their supplies.  There should again be that delicate balancing act between protecting the local farmers and fisherfolks and ensuring reasonable prices for the 110 million domestic consumers.  The Duterte Administration has done pretty well in achieving this appropriate balance in the pork industry that has been suffering from the African Swine Fever for some time now.

           Given the challenge posed by Odette, it will be difficult to hit the high side of 7% or more in the increase in GDP for 2022, as Goldman Sachs considered possible when in late November, it forecasted that the Philippines will be the fastest growing economy In the ASEAN at 7.3%.  I find the most recent forecast of the think tank Japan Center for Economic Research (JCER) of a 7 % in GDP for 2022 as more realistic, considering the damage done by Typhoon Odette.   According to JCER, the Philippine GDP growth of 4.7% for 2021 will be higher than Indonesia (3.2%), Malaysia (2.2%), and Thailand (1.3%). .On a quarter to quarter basis, JCER is projecting 5% growth in the first quarter of 2022; 8.7% in the second quarter (factoring the heating up of  elections-related spending); 6.9% in the third quarter; and 7.1% in the fourth quarter.  To be continued.