THE Philippine recovery is expected to be V-shaped as the economy reopens in the second half of the year, after a record gross domestic product (GDP) contraction at the height of the lockdown, J.P. Morgan said.

The record contraction of 16.5% in the second quarter will bring the bank’s full-year growth forecast for the Philippines to -8%, downgraded from -4.4% previously, it said in a report issued Monday.

The Philippines is thus poised to post the worst economic contraction in Emerging Asia, followed by Malaysia, whose economy is expected to retreat by 7.7%, followed by Hong Kong (-7.4%), Thailand (-7.3%), India (-6.5%) and Singapore (6.2%). Meanwhile, China and Taiwan are expected to expand by 2.5% and 1% this year.

J.P. Morgan said it expects a “more pronounced V-shaped” recovery for the country, with a “large rebound” seen in the last two quarters of 2020 as quarantine rules ease and the output “returning to pre-COVID levels next year.”

It increased its 2021 growth forecast to 9.5% from 7.3% previously, which it said will be among the strongest in the region, assuming the uninterrupted further reopening of the economy.

“While we do expect a strong GDP growth rebound in the Philippines compared to its regional peers, this is premised on the knock-on impact on the economy of this week’s ending of stricter containment measures in the National Capital Region (NCR) following the recent acceleration in cases,” it said.

“The Philippine economy recorded the worst quarterly contraction on record last quarter, in part reflecting the imposition and subsequent extensions of COVID-19 containment measures. Given the 2Q GDP outturn, we now expect GDP to contract 8.0% y/y in FY2020, down from a previous forecast of -4.4%,” according to the report.

The economy plunged into recession after contracting by 16.5% in the second quarter, which included the months when the lockdown was at its strictest. The bank noted a collapse in demand, led by private consumption and investment.

However, there has been a “U-turn in the trajectory of economic activity and manufacturing production” after the second quarter, Acting Socioeconomic Planning Secretary Karl Kendrick T. Chua said Tuesday.

“We are starting to see a U-turn in the trajectory of economic activity and manufacturing production. While we are not yet in positive territory, we are hoping that we can continue to manage this recovery as best as we can,” Mr. Chua was quoted as saying in a statement.

The bank said government borrowing has surged recently, but state spending “has not kept pace” with the growth in debt.

“As a result, the cash balances in the national government accounts have risen sharply, which implies that while public investment has not resumed at full capacity, a quick recovery may be attainable and could lead to a more material widening of the current deficit than we have incorporated in our forecasts,” it said.

It forecast headline inflation to settle at 2.6% this year, slightly higher than the 2.5% in 2019 but still within the 2-4% target set by the government.

Meanwhile, Mr. Chua said the multiplier effects of infrastructure spending and the additional funds allowed by the Bayanihan to Recover as One Act (Bayanihan II) will help with the country’s economic recovery.

Economic managers projected this year’s GDP to shrink by 4.5-6.6%. — Beatrice M. Laforga