COVID-19, Luzon lockdown seen to pull GDP growth down to lowest level since 2009

MANILA, Philippines — The Philippine economy could decelerate to its slowest clip since the aftermath of the global financial crisis as the new coronavirus global pandemic and drastic containment measures meant to stem the contagion threaten to disrupt growth, Japan-based Nomura said on Monday.

In its latest report detailing the impact of the virus on select economies, Nomura aggressively downgraded its gross domestic product (GDP) growth forecast on the Philippine economy for this year to 1.6% from 5.6% previously.

If Nomura’s downwardly revised estimate is realized, that would be the slowest pace since the 1.1% growth chalked up in 2009 when the global economy was just starting to recover from the financial downturn. The forecast, if hit, would also be a sharp deceleration from the actual 5.9% last year, and way below the 6.5-7% target for the year.

“We assume in this scenario that the lockdown is lifted in mid-April as scheduled, but activity is unlikely to return to normal conditions quickly,” analysts at Nomura said.

“Apart from the hit to consumer spending due to social distancing measures and the public fear factor lingering, businesses are also facing more supply chain disruptions with the flow of goods and personnel hampered by severe travel restrictions, and further out, more uncertainty in the operating environment,” they added.

Nomura said President Duterte’s decision to put the island of Luzon — which accounts for more than 70% of the country’s gross domestic product — under a month-long “enhanced community quarantine” ending April 12 will prove “highly disruptive” to overall economic activity.

If worse comes to worst and the Luzon lockdown was expanded nationwide and extended until May, Nomura said the economy could contract to -1.9% this year. Under such a scenario, the government would likely raise the budget deficit to 5-6% of GDP — the widest level since the restoration of democracy in 1986 — while the central bank would likely step in to further cut rates and reduce bank reserves.

On the flip side, growth could come at 3% this year should the lockdown gets lifted as scheduled.

While the government itself recognized that the economy would take hit, Nomura’s latest assessment is worse than the high-end forecast of the National Economic and Development Authority (NEDA) for a 4.3% growth under an outbreak whose economic effects would last until June.

Under a worst-case scenario of no state intervention to temper the economic impact, NEDA sees a 0.6% contraction this year.