DBCC sees further GDP contraction for this year; but to bounce back up to 10% growth by 2022

December 3, 2020

By Celerina Monte

The Philippine economy is likely to fully recover next year and post even double-digit gross domestic product growth by 2022 after a full-year projected contraction in 2020.

The Development Budget Coordination Committee (DBCC) revised on Thursday the macroeconomic targets, including the GDP, this year until 2022.

Budget Secretary Wendel Avisado, who read the DBCC statement in a virtual press conference after the DBCC meeting, said GDP assumption  this year has been adjusted downward to -8.5 to -9.5 percent from earlier range of -4.5 percent to -6.6 percent set last July.

The economic managers attributed the latest 2020 GDP projection due to prolonged imposition of community quarantines in various regions in the country.

"Despite a lower projection than what was initially adopted back in July 2020, further relaxation of restrictions, as we have improved our healthcare system capacity, will keep our economy on the right track towards full recovery," Avisado said.

"Thus, GDP growth is projected to bounce back to reach 6.5 to 7.5 percent in 2021 and 8 to 10 percent in 2022," he added.

Asked about the ambitious GDP projections in the next two years, Acting Socioeconomic Planning Secretary Karl Kendrick Chua said, "I think precisely because of the contraction, we have a low-based effect and there's potential for the economy to catch up and we have seen from the second quarter to the third quarter an eight percent quarter-on-quarter growth and we know in the fourth quarter, we relaxed further our policies and allow more of the businesses to operate so long as they follow the health standards."

"So, we are seeing that quarter-on-quarter growth continuously through 2021 which could explain the strong positive growth in 2021 and when the vaccine is available, then we will continue to see further normalization back to 2019 GDP level," he added.

The DBCC also revised other macroeconomic assumptions and medium-term fiscal program based on the latest emerging data.

For inflation, the range for this year is from 2.4 to 2.6 percent while for 2021 and 2022, the assumption is retained at 2.0 to 4.0 percent.

Assumptions for the price of Dubai crude oil per barrel for 2020 was adjusted from $ 35 to $45 per barrel to $ 40 to $42 per barrel and for the next two years, the DBCC maintained it at $35 to $50 per barrel.

The foreign exchange rate was adjusted to P48 to 50 against the US dollar for this year and P48 to 53 against the dollar from 2021 to 2022.

The 364-day Treasury bill rate assumption was narrowed down to 2.5 to 2.6 percent in 2020 and lowered to 2.0 to 3.5 percent for 2021 and 2.5 to 4.0 percent for 2022, mainly due to low domestic interest rate environment following liquidity easing measures deployed by the Bangko Sentral ng Pilipinas.

The 6-month LIBOR assumption was also lowered to 0.7 to 0.8 percent for 2020 and to 0.2 to 1.2 percent and 0.3 to 1.3 percent for 2021 and 2022, respectively.

The economic team also maintained growth assumption for export goods at -16 percent for 2020, while growth of import goods for 2020 was further adjusted to -20  percent.

The DBCC expects import goods to pick up by next year and 2022 with the growth of export goods maintained at 5 percent and growth of  import goods pegged at 8 percent.

Services exports and imports growth assumptions in 2020 are expected to contract further by 21.4 percent and 19.0 percent, respectively.

But DBCC said these are expected to rebound by 2021 with projected growth reaching 6.0 percent for services exports and 7.0 percent for services imports.

"This accounts for the gradual opening of the domestic economy and increase in travel-related activities," it said.

The DBCC is eyeing to generate revenue up to P2.88 trillion and P3.31 trillion for 2021 and 2022.

Avisado said the adjustments already factor in the expected impact from the implementation of the Corporate Recovery and Tax Incentives for Enterprises bill, as passed by the Senate.

The deficit program for 2020, he said is narrowed down from 9.6 percent of GDP to 7.6 percent of GDP in 2020; 8.9 percent of GDP in 2021; and 7.3 percent of GDP in 2022.

Avisado also said that for 2022, the proposed cash budget is pegged at P5.024 trillion, 11.5 percent higher from 2021 National Expenditure Program and is equivalent to 22.2 percent of GDP. DMS