Philippine Economy to decline nearly -10% in 2020

S&P Global Ratings again trimmed its Philippine economic growth forecast for this year on the continued impact of the coronavirus disease 2019 (Covid-19) pandemic on domestic consumption.

In a report on Thursday, the New York-headquartered credit rating agency announced it now projected the country’s gross domestic product (GDP) to shrink by 9.5 percent.

The figure is worse than its earlier outlook of -3 percent in June, -0-2 percent in April, 4.2 percent and 5.8 percent in March, and 6.1 percent in February.

If correct, the figure would surpass the government’s adjusted assumption of a 5.5-percent contraction.

The revised estimate is also worse than Fitch Solutions and ANZ Research’s -9.1 percent; Fitch Ratings’ -8 percent, Capital Economics’ -8 percent, Asian Development Bank’s -7.3 percent, Moody’s Investors Service’s -7 percent, Sun Life Philippines’ -6.5 percent, Rizal Commercial Banking Corp.’s -5 to -7 percent, HSBC Private Bank’s -3.9 percent, International Monetary Fund’s -3.6 percent, ING Bank Manila’s -2.9 percent, and World Bank’s -1.9 percent.

The Philippines plunged into a technical recession after domestic output fell by a record 16.5 percent in the second quarter and 0.7 percent in the first. This brought the contraction in GDP to 9 percent in the first half.

S&P said its downgraded forecast implied “a larger permanent loss in output.”

“Renewed lockdowns from August in major metropolitan areas, including Metro Manila, together with lingering household caution amid stubbornly high Covid-19 infection rates and limited fiscal policy support are suppressing consumer spending and resulting in widespread job losses,” it added.

To try to contain the spread of the coronavirus, the government has imposed different forms of community quarantines in various cities and provinces since March 17. This came more than a month after the first confirmed case — a tourist from the Chinese city of Wuhan, where the virus first emerged — was reported.

Metro Manila and select provinces were later put under general community quarantine at the start of June, but returned to a stricter modified enhanced community quarantine for two weeks early last month as the number of Covid-19 cases continued to surge.

Assuming the so-called Covid-19 curve eventually flattens in 2021, S&P said economic activity could begin to return to normal.

“However, we expect permanent damage to corporate sector balance sheets and the labor market, which will leave GDP well short of where it would likely have been in the absence of Covid,” it added.

By: Mayvelin U. Caraballo, TMT

Source: Peso Economics