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The growth of remittances from overseas Filipino workers (OFWs) and improvement of external demand are expected to boost the domestic economy’s recovery this year, according to a report by Philippine News Agency.
However, Fitch Solutions Country Risks and Industry Research reduced its growth projection for the country this year from 7.6 percent to 5.8 percent on the expected hit from the enhanced community quarantine (ECQ).
The ECQ status in Metro Manila, Bulacan, Cavite, Laguna, and Rizal set from March 29 until April 4 was extended for another week to April 11 amid surge of coronavirus disease 2019 (Covid-19) cases.
Fitch Solutions said another unfavorable factor in the economy’s recovery is the slow vaccination rollout.
In a report released Monday, the unit of Fitch Group cited signs of gradual economic activity such as the above 50 level of the Manufacturing Purchasing Managers’ Index (PMI), which was unchanged at 52.5 last February against the previous month “indicating a gradual improvement in activity.”
As of last March, the PMI index stood at 52.2 based on the report of the IHS Markit.
An index of above 50 indicates expansion while a figure of below 50 shows otherwise.
“Indeed, respondents noted supportive demand dynamics and increased inventory building on a more positive outlook,” Fitch Solutions said.
The report also said external demand has been improving, partially due to the Covid-19 vaccination program in other countries.
Similarly, OFWs remittances continue to remain resilient, it added.
The report said while the January 2021 inflows declined by 1.7 percent year-on-year, it is 1.8 percent higher than the January 2019 pre-pandemic level.
“We believe that overall remittance flows will begin to gradually rebound as growth picks up globally, particularly on the back of a recovery in the US and the Middle East on the back of rising oil prices, which together accounted for 57.4 percent of remittances in 2019,” it said.
It added while lockdowns in Europe and tightening credit growth in China threaten the broader recovery in global demand as vaccination rollouts progress, “we expect growth to prove strong, boosting the outlook for exports which we forecast to grow 9.5 percent, following a 16.7 percent contraction in 2020.”
“As such, the external backdrop should continue to provide support to the economy in 2021,” it said.
However, the report said implementation of the two-week ECQ will slightly dampen growth prospects given the expected slide in domestic consumption and investment, factors that the domestic economy are highly vulnerable to.