The Philippine economy plunged into recession in the second quarter, as the lockdown halted economic activity.  — PHILIPPINE STAR/MICHAEL VARCAS

PHILIPPINE gross domestic product (GDP) is expected to shrink by 8% this year, the steepest projected decline among economies in Southeast Asia, according to Fitch Ratings.

“Renewed lockdown measures in and around the capital of Manila have been implemented, which will depress economic growth by much more than we had anticipated,” Fitch Ratings said in a note sent to reporters on Tuesday.

The credit rater’s latest forecast for the Philippine economy is worse than the -4% it penciled in last June and the -4.5 to -6.6% projected by the government. The economy already plunged into recession after GDP shrank by 16.5% in the second quarter.

Metro Manila and some surrounding provinces were placed under tighter lockdown restrictions for two weeks in August to slow the surge of coronavirus disease 2019 (COVID-19) infections.

Among the Association of Southeast Asian Nation (ASEAN) economies, Fitch had the worst outlook for the Philippines this year, followed by Thailand (-7.8%), Singapore (-6%), Malaysia (-2.5%), and Indonesia (-2%). Vietnam’s economy is projected to grow by 2.8% this year.

Fitch’s -8% GDP outlook for the Philippines and Maldives is the third worst among Asia-Pacific economies, after the -40% GDP forecast for Macao and -10.5% projection for India.

For Asia-Pacific, Fitch said GDP growth will revert to positive territory in the second half as lockdowns ease and external demand slowly picks up. It sees Asia-Pacific GDP shrinking by 1.1% in 2020, compared to a global contraction of 4.4%.

“The strength of the regional pickup, however, will be constrained by the risk of new coronavirus outbreaks…. Activity appears to be recovering even in countries where the virus continues to spread rapidly, including India, Indonesia and the Philippines, underpinned by the easing of lockdown measures and policy support,” Fitch said.

The Philippines remains the epicenter of the coronavirus disease 2019 (COVID-19) in Southeast Asia, with 241,987 cases as of Tuesday.

Fitch expects the region to bounce back in 2021, with the Philippine economy seen to grow by 9%.

“Countries highly reliant on tourism receipts, such as the Maldives and Thailand, will face a delay in their recovery, while those dependent on remittances, such as Bangladesh and the Philippines, may also take time to recover,” it said.

Cash remittances grew 7.7% year on year to $2.465 billion in June, but year-to-date flows dropped 4% to $14.019 billion, central bank data showed.

More than 164,000 overseas Filipino workers have already been repatriated due to the crisis, according to the Department of Foreign Affairs. The Bangko Sentral ng Pilipinas expects cash remittances to fall by 5% this year.

Fitch said the Philippines’ “BBB” rating with a stable outlook is underpinned by the country’s fiscal and external buffers with its relatively low debt-to-GDP ratio prior to the pandemic, its net external creditor position, and still strong medium-term growth prospects”

“However, these buffers are being eroded by the pandemic-related economic shock, although there is room to accommodate some deterioration in the fiscal outlook,” Fitch said.

The country’s national debt-to-GDP ratio was at 39.6% in 2019. This year, the government projects this to rise to 53.9% due to the pandemic.

Meanwhile, the general government debt-to-GDP stood at 34.1% in 2019, which is much lower than the 42.2% median for BBB-rated countries, Fitch said. This is projected to increase to 47.8% this year, 49.8% in 2021 and 50.1% in 2022.

Fitch flagged some “negative sensitivities” for the Philippine rating, including reversal of policy reforms that could weaken the economy; and the deterioration in the asset quality of banks that would lead to stress in the financial system. — Luz Wendy T. Noble