First Metro Investment sees deeper recession this year, but recovery in 2021

The Philippines faces a much deeper recession this year but is expected to recover in 2021, the investment banking arm of Metrobank Group said on Wednesday.

The country’s GDP is expected to contract by 8 to 9 percent this year due to the disruptions caused by the COVID-19 pandemic, according to First Metro Investment Corp (FMIC).

The forecast is worse than the 5.5 percent contraction seen by government economic managers.

The Philippine economy shrank 16.5 percent in the second quarter, the worst on record, after already shrinking 0.7 percent in the first quarter.

“Economic recovery will be slow and difficult for the remainder of the year as COVID-19 cases continue to increase. Thus, the BSP is expected to continue its accommodative monetary policy to support the recovery efforts in the economy,” FMIC said.

FMIC, however, said growth will recover next year because the country’s “macroeconomic fundamentals are on solid ground.”

The company said the banking industry remains well-capitalized, and the country’s debt-to-GDP ratio was at a historic low of 39.6 percent when the pandemic began, thus providing policymakers with “enough fiscal buffers.”

“Before the pandemic, we are among the fastest-growing economies in Asia, with an average GDP growth of 6.6 percent from 2016-2019,” said FMIC president Jose Patricio Dumlao.

He added that while other countries were either downgraded or given a negative outlook during the pandemic, the Philippines’ sovereign rating was affirmed by international credit rating agencies, maintaining the country’s investment-grade levels.

The company also said the Bangko Sentral ng Pilipinas may further cut banks' reserve requirement ratio (RRR) by up to 200 basis points, bringing the RRR to 10 percent from 12 percent.

FMIC said the BSP is also not ruling out another rate cut before the year ends.

This was despite BSP Gov. Benjamin Diokno's earlier statement that there was "no compelling reason" for a further policy rate cut despite the recession.

Source: ABS-CBN News

Source: Peso Economics