Moody’s, AMRO downgrade Philippines growth forecast

Lawrence Agcaoili, Czeriza Valencia (The Philippine Star) - April 9, 2020 - 12:00am

MANILA, Philippines — Moody’s Investors Service further slashed its 2020 gross domestic product (GDP) growth forecast for the Philippines to 2.5 percent as the government extended the Luzon-wide enhanced community quarantine by another two weeks.

In its latest credit opinion on the Philippines, the debt watcher said the rapid and widening spread of the coronavirus disease 2019 or COVID-19, deteriorating global economic outlook, falling oil prices, and financial market turmoil are creating a severe and extensive economic and financial shock.

“For the Philippines, we expect a sharp slowdown in growth this year, with real GDP growth decelerating to 2.5 percent in 2020, which incorporates the curtailment of domestic demand from the imposition of the enhanced community quarantine on the entire northern island of Luzon,” Moody’s said.

The international credit rating agency warned the lower growth and substantial fiscal stimulus would contribute to a higher general government debt burden that is expected to increase to around 44 percent of GDP in the next few years.

The credit rating agency has lowered the GDP growth forecast for the Philippine three times this year. The projections were reduced to 6.1 from 6.2 percent then to 5.4 percent and finally to 2.5 percent.

It added the COVID-19 global outbreak presents near-term challenges on the country’s credit profile characterized by strong economic performance, a strengthening fiscal position and limited vulnerability to external shocks in recent years.

“In particular, stringent containment measures have curtailed domestic activity, while the global downturn weighs on the outlook for remittance inflows and goods exports. Structural credit challenges include low per capita income and modest debt affordability,” Moody’s said.

Moody’s said the extension of the enhanced community quarantine up to April 30 to contain the virus spread

threatens the Philippines through a number of channels, including trade, supply chain linkages, investment, remittances and tourism.

It added the stringent containment measures would also sharply curtail domestic demand.

“The outlook for Philippine growth will be negatively impacted through trade, supply chain linkages, investment, remittances and tourism. In addition, stringent containment measures will also sharply curtail domestic activity, including consumption and the implementation of the government’s spending programs,” it said.

Meanwhile, the ASEAN+3 Macroeconomic Research Office (AMRO) expects then country’s economic growth to slow down to 4.5 percent this year because of the economic fallout from the pandemic

In its latest ASEAN+3 Regional Economic Outlook (AREO 2020) released yesterday, the regional macroeconomy surveillance organization downgraded the growth outlook for the Philippines from the growth projection of 6.2 percent in March.

Post-pandemic, a strong rebound of 6.7 percent in 2021 can be expected as the economy returns to normal.

As COVID-cases surge in the ASEAN+3 region, AMRO now projects the ASEAN+3 region’s growth to decline sharply to two percent in 2020, followed by a strong rebound to 5.5 percent in 2021

Europe and the United States are expected to go into recession just as the outbreak subsides in China and Korea. As a result, China’s economic recovery will be much weaker at 3.5 percent in 2020.

The ASEAN economies alone are expected to weaken sharply, growing at an average of only 1.1 percent in 2020, before recovering to 5.2 percent in 2021.

The ASEAN+3 Region comprises the 10 member-states of ASEAN plus China, Japan, and Korea.

“2019 was a highly eventful year, marked by the escalating US-China trade tensions, geopolitical conflicts, domestic political unrest, market sell-offs, and extreme weather conditions,” said Dr. Hoe Ee Khor, AMRO’s Chief Economist.

AMRO said following a very weak first half of the year because of the pandemic, economic activity in the region can rebound strongly in the second half, led by manufacturing – supported by recovery in the global semiconductor and capital expenditure cycles – and positive sentiment surrounding the US-China Phase One trade agreement.

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