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Lockdown may push growth below 6%

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People wearing protective masks struggle to maintain social distancing in Quezon City, March 16. -- REUTERS

By Luz Wendy T. Noble
Reporter

MOODY’S Investors Service slashed its economic growth outlook for the Philippines to below six percent this year, factoring in the impact of the Luzon lockdown and the rising number of coronavirus disease 2019 (COVID-19) cases.

In a report sent to reporters on Tuesday, the debt watcher further trimmed its 2020 forecast for the Philippine economy to 5.4%, from the 6.1% penciled in last February and the 6.2% estimate given last year.

If realized, Moody’s latest estimate would be slower than the 5.9% economic expansion recorded in 2019.

This would also be below the 6.5%-7.5% target set by the government, although Socioeconomic Planning Secretary Ernesto M. Pernia has said up to 1.2 percentage points could be shaved off this year’s gross domestic product (GDP) growth if the coronavirus outbreak continues until yearend.

Moody’s said rising global recession risks due to the pandemic prompted a downgrade of its growth forecast for emerging Asia to 4.7%. It also lowered growth outlook for China (4.8%), Thailand (1.8%), Malaysia (3%), and Vietnam (6%).

“Our new baseline assumes a pullback in consumption and ongoing disruption to production and supply chains in the first half of 2020, followed by a recovery in the second half,” Moody’s said in a report.

“Also, rising rates of infection would drive global sentiment even lower, heightening asset price volatility, and tightening financing conditions, which could snowball into deeper economic contraction,” it added.

Sought for comment, Christian de Guzman, senior vice-president at the Sovereign Risk Group of Moody’s said the downgraded outlook for Philippine growth factored in the lockdown of the main island of Luzon, which began on Monday.

“The main factors behind the revision of the Philippine forecast are downward shifts in our view of external demand, the rising rate of infection domestically and the imposition of measures to contain the outbreak, including the community quarantine on Metro Manila, which has since been expanded to Luzon,” Mr. De Guzman said in an e-mailed response to BusinessWorld.

The Health department on Tuesday afternoon reported 45 new confirmed cases of coronavirus, bringing the total to 187.

The government on Monday placed the entire island of Luzon under “enhanced community quarantine” until April 12. During this period, classes and public transportation are suspended, while businesses are asked to stop operations or implement work-from-home schemes. Malls in Luzon have also been shut down.

Mr. De Guzman noted that the month-long lockdown will dampen consumer spending.

“The Philippine economy, which is largely dependent on consumption, is susceptible to swings in confidence, and the outbreak and associated containment measures have thus far served to dampen the mood of Filipino consumers and their appetite to go to shopping malls or eat out, for example, thus weighing on the outlook for the retail sector,” he said.

Mr. De Guzman said limited government operations may hinder the Duterte administration’s ability to fulfill spending commitments through its “Build, Build, Build” infrastructure program.

Higher government spending is seen to help cushion the effects of the COVID-19 on the Philippine economy.

“This casts into doubt on the ability of the government to execute comprehensively its budgeted plans, which continued an emphasis on ambitious infrastructure development and which we had previously cited as a buffer against the economic fallout from the coronavirus outbreak,” he said.

Last week, Moody’s Analytics, a unit of Moody’s which focuses on non-rating activities, lowered its growth forecast for the country to 4.9% due to expected losses from service exports and lower remittances.

For 2021, Moody’s upgraded its outlook for the Philippines to 6.5% from a previous estimate of 6.4%.

“Our upward revision for 2021 assumes a normalization in economic activity next year, which should lead to a mild bump in growth due to base effects, i.e., an artificially large increase from depressed levels from the first half of this year,” Mr. De Guzman said.





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