Lockdown to further drag growth this year

By Beatrice M. Laforga and Luz Wendy T. Noble
Reporters

PHILIPPINE economic growth may slow to 4.3% or even lower if the coronavirus disease 2019 (COVID-19) continues to spread and the Luzon-wide lockdown extends into the second semester, Socioeconomic Planning Secretary Ernesto M. Pernia said on Monday.

At the same time, S&P Global Ratings further slashed its gross domestic product (GDP) outlook for the Philippines to 4.2%, while Fitch Solutions Macro Research, a unit of Fitch Ratings, downgraded its Philippine growth forecast to 4% this year.

“Preliminary estimate 2020 GDP growth: 4.3%. Could be lower if crisis persists and enhanced community quarantine is extended beyond midyear,” Socioeconomic Planning Secretary Ernesto M. Pernia told BusinessWorld in a mobile phone message on Monday.

Citing preliminary estimates by the National Economic Development Authority (NEDA), Mr. Pernia said the Philippine economy could expand by 4.3% this year, slower than the 5.9% in 2019. This would also be below the initial 5.5-6.5% projection made at the onset of the COVID-19 outbreak and far from the official estimate of 6.5-7.5%.

The Development Budget Coordination Committee (DBCC) has yet to update the government’s macroeconomic assumptions, but is scheduled to meet this month.

In a note sent to reporters on Monday, S&P once again trimmed its 2020 growth forecast for the Philippines to 4.2% from the 6% baseline forecast last December.

However, this would still be faster than S&P’s 2.7% growth outlook for Asia-Pacific this year, as well as China (2.9%), Indonesia (4.1%), Malaysia (2.7%) and Thailand (0.5%). India and Vietnam are expected to lead growth in the region at 5.2% and 5%, respectively.

“Though necessary, this would have a direct impact on domestic demand, with most discretionary consumption and investment relegated to the sidelines for a while,” Mr. Conti said in an e-mailed response.

Luzon, which makes up 70% of the country’s gross domestic product (GDP), is under an enhanced community quarantine that is scheduled to end on April 12.

“[S]harp changes in global conditions for health, economic, and financing markets have led S&P to revise our baseline forecast to what we now see as a global recession… We therefore see weak demand both on the domestic and external fronts, compounded by tougher global financing conditions. This is notwithstanding the fact that the Philippines is less dependent on tourism and foreign direct investment relative to many of its neighbors,” Mr. Conti added.

On the other hand, S&P upgraded its 2021 growth forecast for the country to 7.5% from its 6.4% baseline estimate in December.

“[D]epth of the slowdown as well as the speed and magnitude of the recovery will still depend crucially on how the global and local situations develop over the next few quarters,” Mr. Conti said.

Meanwhile, Fitch Solutions said it now expects the Philippines to expand by just 4% this year, from the 6% penciled in earlier this month.

“We have previously flagged how the Philippines economy would suffer from the COVID-19 outbreak impact through tourism, remittances, supply-chain disruption and foreign direct investment inflows weakening. While these transmissions channels are still in place, we now believe that the most significant drag on growth will come from quarantine measures in the country following a severe outbreak,” Fitch Solutions said.

In a separate report, Fitch Solutions said that it expects BSP to maintain its dovish stance, expecting rate cuts of another 50 basis point (bps) in the next quarters.

“[This is] due to a need to attract foreign inflows and protect the peso amid an aggressive risk-off environment,” it said.

Following the spate of easing from central banks across the world, the Monetary Board decided to slash rates more aggressively by 50 bps on March 19, reducing overnight reverse repurchase to 3.25% while overnight deposit and lending were brought down to 2.75% and 3.75%, respectively.