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Moody’s Analytics says lack of capital formation recovery a drag on Philippine growth potential

MOODY’S ANALYTICS said that while parts of the Philippine economy have shown signs of recovery, capital formation continues to lag, possibly signifying economic scarring over the medium term.

Moody’s Analytics said it now sees the Philippines’ medium-term growth potential at 6%, down from 6.6 % previously, due to the delayed recovery in investment to pre-pandemic levels.

“In the midst of the ongoing recovery, gross fixed capital formation (GFCF) has yet to be restored to pre-pandemic levels, contributing to our view that potential growth may have deteriorated to around 6%,” Moody’s Senior Vice President and Manager Christian de Guzman said to BusinessWorld.

The Philippine Statistics Authority (PSA) estimates GFCF at $21.534 billion in the third quarter, well below the $28.279 billion posted in the last pre-pandemic quarter ending December 2019.

The 6% outlook is supported by other signs of recovery, like the 4.5% unemployment rate, which is below the 4.6% rate reported in the quarter ending December 2019.

“Labor market indicators — such as employment and, conversely, unemployment — have largely recovered, mirroring the very healthy rates of growth since the economy accelerated its reopening in late 2021,” Mr. De Guzman said

“However, there has been a partial reversal of the pre-pandemic gains in poverty reduction, suggesting that the financial health of a number of households has not been restored,” he added.

Moody’s Analytics added that this may be in part to to a greater share of workers involved in “elementary occupations,” or informal work, compared to the period before 2020.

Moody’s Investment Service has said in a report that the duration of pandemic restrictions means large portions of the school-age population were deprived of formal education with inadequate access to computers, broadband internet and other tools needed to facilitate remote learning.

“If not fully addressed, the lack of a significant catch-up in educational outcomes would weigh on the competitiveness of the Philippine economy in relatively high-skilled sectors, such as business process outsourcing,” the report said.

“Against this backdrop, higher inflation could further undermine household balance sheets and dampen the outlook for continued employment growth,” Mr. De Guzman said.

“The primary driver of economic scarring for the Philippines has been the combination of the deep recession in 2020 on account of one of the longest and strictest containment regimes in the region, and the delayed reopening of the economy. These factors highly impacted consumption, which is still the most important driver of Philippine growth, and investment as mentioned above,” Mr. De Guzman told BusinessWorld. — Aaron Michael C. Sy

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