RCBC chief economist Michael Ricafort (left) and BDO chief market strategist Jonathan Ravelas
MANILA – Implementation of more fiscal measures, approval of additional stimulus measures, and more stringent implementation of health protocols will boost recovery of the Philippine economy from the pandemic.
Michael Ricafort, Rizal Commercial Banking Corporation (RCBC) chief economist, expects the domestic economy to still post contractions in the second half of the year but not deeper than the -16.5 percent in the second quarter.
He said implementation of the 15-day modified enhanced community quarantine (MECQ) in the National Capital Region (NCR), Bulacan, Laguna, Cavite, and Rizal starting August 4 “could reduce/slow down economic activities amid tighter quarantine standards/health protocols to prevent Covid-19 (coronavirus disease 2019) from spreading further.”
“Monetary easing tools already in place and any social amelioration program for the two-week MECQ period would be offsetting factors as part of intervention measures to help shore up greater economic activities,” he said in a reply to e-mailed questions from PNA.
Ricafort projects full-year output to be around -5 to -7 percent, “consistent with the latest government estimate of -5.5 percent”.
He expects further reduction in banks’ reserve requirements after the 200 basis points reduction in universal and commercial banks (U/KBs) and the 100 basis points in rural banks and cooperative banks (RCBs) reserve requirement ratio (RRR) to date.
“Though any further cut/s on the local policy rates (from the current record low of 2.25 percent) cannot be completely ruled out, that would further reduce borrowing costs as may be needed most by the economy as this time,” he said.
To date, the BSP’s policy-making Monetary Board (MB) has slashed the central bank’s key policy rates by a total of 175 basis points.
Ricafort said approval of the various tax reform measures like the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, which aims to cut corporate income tax from 30 percent to 25 percent immediately, “may become the biggest economic stimulus measure in the coming years”.
The Bayanihan 2 and the Financial Institutions Strategic Transfer (FIST) Act will also boost the recovery process, he added.
BDO chief market strategist Jonathan Ravelas also forecasts a -5.9 percent output for the domestic economy this year, as he hopes that the 15-day ECQ in Luzon and four nearby provinces will not be extended.
Aside from the government’s infrastructure program, he considers as factors that will further boost economic recovery the additional spending on health and education and the election spending ahead of the 2022 polls.
In an interview with PNA, Ravelas said additional fiscal spending, and not just central bank’s monetary measures, is now needed.
“To be able to steer the ship out of the storm and into port, the government needs to spend. It’s a balancing act,” he said, referring to the need to also manage spending vis-à-vis the budget deficit.
Other crucial needs this time are the passage of the tax reform measures such as CREATE and the stimulus package like the Bayanihan 2 and the Accelerated Recovery and Investments Stimulus for the Economic (ARISE) bill, he said.
Ravelas also cited the need for wider and more efficient information drive on health protocols because although coronavirus cases (Covid-19) cases continue to rise, some people seem to disregard these protocols.
“It is the civic duty of people not to get infected by the virus,” he said.
In a report, ANZ Research added that “although monetary policy can be eased further, the larger burden is on fiscal policy”.
It said “growth outlook is challenging”, noting the re-implementation of MECQ in NCR and four nearby provinces will hamper the recovery process.
“Real time indicators signal a very modest improvement,” it said, projecting that “investment is likely to remain weak” because of “subdued business sentiment and excess capacity”.
It said aggregate demand will have to be boosted by increased fiscal spending which remains below potential.
“At the same time, the pace of improvement in high frequency indicators cannot assure a recovery in H2 (second half) 2020,” it added. (PNA)
