Economic outlook

Before the COVID-19 global pandemic, the Philippines was one of the fastest growing economies in Asia, with real GDP growth of 6.3% per year on average over the 10 years to 2019. Challenges in controlling the spread of COVID-19 and slow progress on the vaccine rollout means the Philippines recession has been more severe than other large Southeast Asian economies and its recovery is likely to be more drawn-out. Frequent lockdowns hit business investment and consumer spending hard and contributed to the largest recession since records began in 1946; real GDP fell 9.5% in 2020.

The government’s expansionary fiscal program and accommodative monetary policy will put the economy on a firm recovery path by the second half of 2021. Government assistance to support employment and assist in hard-hit sectors affected by the pandemic, including agriculture and tourism, will further support a pickup in the economy. The IMF forecasts real GDP to resume growth above 6% per annum from 2021.

Longer term macroeconomic fundamentals remain sound, unless the Philippines faces damage to regional supply chains or a structural decline in remittances—which equate to about 9% of GDP and are a large driver of household incomes and consumption. A large and youthful population and the government’s ongoing commitment to enhancing the investment climate through increasing infrastructure spending should bolster growth potential. Beyond the pandemic, recovery in the business process outsourcing industry and tourism should contribute to a revival in the services sector.

Per capita incomes took a hit in the Philippines as the COVID-19 pandemic temporarily reversed gains in output, jobs and incomes. The IMF projects GDP per capita to resume rising from 2021, and exceed US$4,500 in 2025. Government assistance for workers and firms affected will help counter the negative effects on the COVID-19 pandemic on employment and incomes over the longer term.