THE Philippines’ struggle to control the coronavirus disease 2019 (COVID-19) pandemic will likely impede the economy’s recovery, S&P Ratings said.
“The Philippines has struggled to control the virus, leading to a sharp drop in domestic demand and employment. Though the underlying macroeconomic fundamentals remain fairly good for the medium to long term, the recovery will take a while,” S&P Sovereign Analyst Andrew Wood said in an e-mail to BusinessWorld.
However, Bangko Sentral ng Pilipinas Governor Benjamin E. Diokno said the economy is poised for a U-shaped rebound next year as the government’s infrastructure push gets under way.
“We expect a gradual U-shaped recovery in economic activity going into next year. GDP (gross domestic product) growth is expected to rebound in 2021. The projected pickup in growth will be supported by the implementation of the ‘Build, Build, Build program,’” Mr. Diokno said in a briefing on Thursday.
Economic managers expect GDP to shrink by around 6% this year, after the economy slid into a recession in the second quarter with a record 16.5% contraction. Lockdown restrictions have since been eased to boost economic activity.
The Philippines reported 1,664 new COVID-19 infections on Thursday, bringing the total to 363,888.
The International Monetary Fund (IMF) said countries have to flatten the COVID-19 curve before seeing a solid economic recovery.
“It is a prerequisite for a firm economic recovery, that the virus curve be flattened… There needs to be ongoing vigilance because, as we know, this is a marathon and not a sprint, and the virus rears its ugly head from time to time, when we do not expect it, and health policy needs to be very vigilant and proactive,” IMF Acting Director of the Asia- Pacific Department Jonathan Ostry said in a briefing on Wednesday. Mr. Ostry said fiscal support and an infrastructure push will also help countries in their recovery path. The IMF and S&P expect the Philippine economy to shrink by 8.3% and 7.3%, respectively, this year. Prior to the pandemic, the country was experiencing an annual GDP growth of around 6%.
“Despite the likelihood of high growth rates ahead due to this year’s low base, we expect economic output to remain below pre-COVID trend levels for at least a few years,” S&P Ratings’ Mr. Wood said.
However, Mr. Wood said the country’s growth prospects in the coming years may still tread higher than peers, which will help keep ratings intact.
S&P expects GDP to rise by 9.6% in 2021, a steeper pace than the 7.4% estimate by the IMF as well as the 6.5% to 7.5% growth projection by the government.
“A solid growth rate from 2021 onwards should also help the government to contain fiscal and debt risks,” Mr. Wood said. In May, S&P affirmed the country’s long-term credit rating at BBB+ with a stable outlook, citing recovery prospects by next year. However, it warned a downgrade could be possible if the economy suffers a worse-than-expected and prolonged downturn.
At the same time, Mr. Diokno said the decline in cash remittances will only have a minimal impact on GDP.
Cash remittances slumped by 2.6% to $19.285 billion in the first eight months of 2020 from the $19.808 billion logged in the same period of 2019. The BSP expects cash remittances to decline by 2% this year before growing by 4% this year.
“The projected 2% decline in overseas Filipino remittances in 2020 is expected to have a minimal impact in GDP… The improved outlook also stems from the easing lockdown measures in some host countries and recent improvement in OFW deployment,” the BSP chief said.
Over 220,000 overseas Filipino workers have been repatriated since February, according to the Department of Foreign Affairs. — Luz Wendy T. Noble