Moody’s trims Philippines growth forecast to 6.1%

As COVID-19 outbreak adds pressure on growth

MANILA, Philippines — Global credit watchdog Moody’s Investors Service has trimmed the gross domestic product (GDP) growth forecast for the Philippines to 6.1 percent instead of 6.2 percent this year amid the global outbreak of the novel coronavirus disease (COVID-19).

Christian de Guzman, senior vice president at Moody’s, said the outbreak adds to other pressures on growth in Asia-Pacific, with the impact felt primarily in trade and tourism, and for some sectors also through supply-chain disruptions.

De Guzman said the shock comes on the back of a marked slowdown in 2019 as decelerating global trade hit the region.

“Our baseline assumption is that the economic effects of the coronavirus outbreak will continue for a number of weeks before tailing off and allowing normal economic activity to resume,” De Guzman added.

Despite the revised forecast, the Philippines is expected to remain the second fastest growing economy despite the expected GDP slowdown in emerging Asia to 5.2 percent this year from 5.7 percent last year.

The projected GDP growth of the country is slightly lower than Vietnam’s 6.4 percent, but faster than India’s 5.4 percent, China’s 5.2 percent, Indonesia’s 4.9 percent, Malaysia’s 4.2 percent and Thailand’s 2.3 percent.

The Philippines has posted 84 straight quarters of positive GDP growth after accelerating to 6.4 percent in the fourth quarter from six percent in the third quarter last year.

The country’s GDP growth slowed to an eight-year low of 5.9 percent last year from 6.2 percent in 2018, missing the government target of six to 6.5 percent, due to soft global markets due to the US-China trade war, the tightening cycle by the Bangko Sentral ng Pilipinas (BSP) in 2018 as well as the delayed passage of the 2019 national budget.

For 2020, economic managers penciled a GDP growth target range of 6.5 to 7.5 percent. Based on initial estimates by the BSP, the COVID-19 outbreak could slash the country’s GDP growth by 0.3 percentage point this year.

For 2021, Moody’s sees the country’s GDP accelerating to 6.4 percent.

The BSP’s Monetary Board has resumed its easing cycle to boost economic activity. It slashed interest rates by 25 basis points (bps) last Feb 6, bringing the total reduction to 100 bps since May last year.

The central bank also lowered the reserve requirement ratio for big and mid-sized banks by 400 bps as well as for small banks by 200 bps freeing up P450 billion in additional funds to boost economic activity.

Moody’s also lowered the GDP growth forecast of China to 5.2 percent instead of 5.8 percent this year.

“We have lowered our China growth forecast to 5.2 percent for 2020 from 5.8 percent previously, reflecting a severe but short-lived economic impact, with knock-on effects for economies across the region,” De Guzman said.

The debt watcher said Macau, and Hong Kong would face the biggest hit, given their close economic integration with China.

The revised forecasts also incorporate updated views unrelated to the coronavirus outbreak, including weaker domestic demand in India and Thailand, as well as expectations of policy offsets.

“Reduced Chinese demand for the Asia’s exports and supply chain disruptions represent the two most direct transmission channels for slowing economic growth, although services trade adds a third channel,” De Guzman said.

He said goods and commodity exporters are most exposed to a protracted fall in Chinese demand, while tourism hubs that rely on Chinese visitors will also be vulnerable.