Outbreak-rattled consumers likely to slow GDP growth to 4% —Fitch
MANILA, Philippines — As millions face unemployment and businesses in severe pain, the coronavirus pandemic is hitting the Philippine economy where it hurts the most: consumer spending.
Coupled with disruptions to global supply chain and tighter financing conditions, Fitch Solutions, a unit of debt watcher Fitch Ratings, said the local economy may see its worst slowdown since 2011 as the government gets preoccupied with putting the outbreak under control.
From the original forecast of 6%, Fitch said the economy would likely decelerate to 4% this year, way below the government’s 6.5-7.5% target for the year which was set before the outbreak started.
While the government itself recognized that the economy would take hit, Fitch’s latest assessment is worse than the high-end forecast of the National Economic and Development Authority (NEDA) for a 4.3% growth. NEDA sees a 0.6% contraction under the worst-case scenario.
At the onset, the enhanced community quarantine in Luzon, where 73% of economic output emanated in 2018, would result into a “sharp contraction” in domestic activity as businesses are put into a halt and consumer stay home.
“Household balance sheets in particular will be weakened by the outbreak,” the think tank said.
“While we do not expect a shock to the magnitude of the global financial crisis, the outbreak is likely to drag on the Philippine economy into the fourth quarter of 2020 to first quarter of 2021,” it explained.
The quarantine is poised to end on April 12, but Fitch said this “could be extended” and therefore, the economic damage could be more severe, especially to employment. “This will weigh on growth over an extended period and risks turning the shock into a more sustained decline in domestic demand,” it said.
Overseas, the government cannot also rely on exports to boost growth, as trade is likely to deteriorate due to work disruptions in the US and China, the country’s top trade partners.
Tourism, which already experienced a massive 41% drop in foreign visitors in February, can “face a deeper contraction” as airlines ground flights due to travel restrictions imposed globally to contain the pandemic. Remittances, which is a key dollar earner, can also become unreliable at this time.
The slowdown in the country’s dollar-generating engines means less dollars for the Philippines from these activities, which can be bad news considering that the country already operates in twin current and fiscal deficits, indicating “a shortage of domestic savings and a reliance on foreign funding to support growth.”
“This will limit the ability of the Philippines to ramp-up investment and consumption over the near-term and could put strains on Philippine exporters that require short-term foreign exchange access,” Fitch said.
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