THE Philippines is likely to see the steepest drop in investments among six Asian economies in the second half of the year, as Metro Manila’s return to a strict lockdown for two weeks last August dented recovery prospects, the Institute of International Finance (IIF) said.

In a note titled “Macro Notes – EM Asia: Gradual Recovery in Capital Flows” published Thursday, the IIF said it expects a 41% drop, equivalent to $7 billion, in non-resident capital flows to the Philippines in the second half.

This is the biggest decline among the Asia-6 grouping, which includes India, Indonesia, South Korea, Malaysia and Thailand.

“The Philippines, where pandemic-related lockdowns were the most stringent in the region, are expected to experience the largest drop in percentage terms (-41% or -$7 billion). The country also reinstituted restrictions in August, which have led to further damage to the economy,” IIF said.

Metro Manila and nearby provinces were once again placed under a modified enhanced community quarantine from Aug. 4- 18 to curb the increasing number of coronavirus infections. Since then, Metro Manila is under a general community quarantine, with restrictions gradually being eased to revive a sluggish economy.

India is estimated to record a $38-billion decline in capital inflows, while Korea and Malaysia are seen to lose $12 billion and $5 billion, respectively.

Thailand will likely record an uptick in investments but the IIF expressed concern over the political tensions in the country.

Next year, investment flows to the Asia-6 sub-region would see a gradual recovery, driven by the expected increase in foreign direct investments (FDI) as more countries diversify their supply chains away from China.

“The Asia-6 are benefiting from better growth prospects, solid macro fundamentals, the advancement of reforms, and strong external positions. A new wave of COVID-19 (coronavirus disease 2019) infections, similar to current developments in Europe and the US, and the potential need for renewed lockdowns represents the main downside risk to the outlook,” it said.

The IIF expects FDI inflows to the region falling to $90 billion by end 2020, before rising to $119 billion in 2021 as economies recover from the COVID-19 pandemic.

FDI net inflows to the Philippines fell 11% to $3.795 billion in the January to September period.

“In the medium term, the region’s positive growth outlook and a potential diversification of global supply chains away from China will continue to drive robust increases. Turning to foreign holdings of domestic government debt, we see reductions in all except in the case of Korea,” it said.

“We expect foreign investors to continue to differentiate within the region on the basis of macroeconomic fundamentals, reform steps taken, and assessments of political stability,” it added. — Beatrice M. Laforga