The Philippine economy is projected to post a sharp reversal in its third quarter growth performance this year from a significant rebound in the second quarter due to the strict lockdown imposed in Metro Manila in August, an ASEAN growth tracker said.

According to the ASEAN growth tracker by Oxford Economics, the Philippines' dimmer growth forecast is also aligned with the overall weak third quarter performance expected for ASEAN 6 economies. The ASEAN-6 growth tracker, which includes Indonesia, Malaysia, the Philippines, Thailand, Singapore, and Vietnam, points to a weak start to Q3.

It noted that the strong end to Q2 with a significant rebound in industrial production in June is unlikely to continue into Q3. “Therefore, we expect a sharp reversal in the Philippines’ growth tracker in August, bringing it closer to our Q3 growth forecast,” said Oxford Economics, one of the world's foremost independent global advisory firms.

The Philippine Gross Domestic Product (GDP) posted a growth of 11.8 percent in the second quarter of 2021. This was the highest since the fourth quarter of 1988 which posted a growth of 12.0 percent. The main contributors to the growth, with their corresponding increase, were: Manufacturing, 22.3 percent; Construction, 25.7 percent; and Wholesale and retail trade; repair of motor vehicles and motorcycles, 5.4 percent.

The Philippines is among three ASEAN countries, the two others being Malaysia and Indonesia with pessimistic forecasts. But, Singapore, Thailand and Vietnam, the Q3 growth forecasts are broadly in line with their monthly growth trackers in July. “The trackers for Malaysia, Indonesia, and the Philippines suggest our Q3 forecasts may be pessimist for these countries,” it added.

The Oxford Economics said that its growth tracker forecasts 2.7 percent year on year ASEAN-6 GDP growth in Q3, substantially lower than its growth tracker’s 6.4 percent year on year increase in July.

“Our growth tracker confirms that economic momentum slowed for ASEAN-6 economies in July. We expect growth to deteriorate further in the near term as tight restrictions in several ASEAN economies will weigh on activity,” said Oxford Economics.

For Indonesia and Malaysia, it noted that said these two countries have started to ease Covid-related

curbs, especially for the fully vaccinated, but health concerns remain high. The positivity rate – meaning the share of

Covid tests that are positive – is around 14 percent for both economies, well above the 5 percent benchmark, which is one of

the indicators that showed the outbreak is under control according to the WHO standards. “We think periods of tighter

restrictions may be necessary in the coming months if hospitals become overwhelmed,” it added.

The ASEAN growth tracker further noted that exports and industrial production continued to contribute positively to its tracker, but to a lesser extent than earlier this year. Retail sales dragged on growth across the region in July after a brief rebound.

The study further noted that risks are still tilted to the downside given the ongoing pandemic and low vaccination coverage across

most of the region.

Following a gradual pick-up in Q1 and a substantial rebound in Q2 due to favorable base effects, growth slowed to 6.4 percent year on year in July from 8 percent year on year in June.

The waning base effect partly explained the downtick in the growth tracker in July, but coronavirus outbreaks in recent months have also weighed on ASEAN’s economic recovery. A surge in Covid cases in the region led to renewed anxiety and tighter

government-imposed restrictions from June onwards. Restrictions were either tightened or extended into August for most ASEAN-6 economies, and daily infections are still rising rapidly in Malaysia, the Philippines, and Vietnam. Therefore, it expected its tracker’s year on year growth will continue to trend down in August, bringing it closer to its Q3 growth forecast of 2.7 percent year on year for these economies.

Mobility restrictions were tightened in Vietnam and the Philippines, while Indonesia and Thailand extended their lockdowns in high risk areas into August. Malaysia is relaxing measures, though it has not yet managed to contain the recent Covid outbreak. Singapore is also easing restrictions, but only at a gradual pace.

As such, the risks also tilted to the downside, it added.

The briefer also noted that low vaccination coverage in most ASEAN economies complicates their pandemic containment strategy as lockdowns may need to be re-imposed if cases start to surge again.

Among the 6 ASEAN economies, Singapore is the outperformer with 80 percent of population fully vaccinated, putting it in a better position for a more sustained economic reopening. Malaysia is the next highest with 48 percent, but its daily infections and deaths scaled by population currently remain the highest in the Asia Pacific region. Vietnam is the other outlier with less than 3 percent of its population fully vaccinated.

“We expect most ASEAN-6 economies to vaccinate 80 percent of their populations by mid-2022, with Vietnam reaching this threshold by September next year,” it noted.

The growth tracker also noted of the level of immunity needed to avoid a sharp rise in hospitalizations and end the pandemic

is still uncertain.

Admittedly, the economic impact of restrictions this year has generally been less severe than that of last year and it’s

possible that our Q3 growth forecast will need to be adjusted upward. “But we think the downside risks still outweigh the

upside risks. We expect economic recoveries to be bumpy and further delayed to next year for the ASEAN bloc. We

have also cut our near-term global growth forecast due to the rapid spread of the Delta variant. If new virus variants

result in another global lockdown, we expect ASEAN’s growth recovery will be further delayed to 2023 from 2022,” it added.