Economy seen contracting this year

MANILA, Philippines — S&P Global Ratings expects the Philippine economy to contract this year as businesses came to a grinding halt amid the coronavirus disease 2019 or COVID-19 outbreak.

In a report, the debt watcher said it now expects the Philippine economy to contract by 0.2 percent instead of growing by 4.2 percent this year.

“There are no short cuts, no silver bullets to help us understand what the human and economic price of the COVID-19 pandemic will be. Only with experience and data can we learn the key lessons, among them: how long lockdowns need to last, how economies can reopen before a lasting medical solution is found, and what lasting imprint this episode will leave across the global economy,” it said.

S&P has lowered its gross domestic growth forecast for the Philippines four times this year. From its original GDP growth forecast of 6.2 percent in December, the projection was lowered to 6.1 percent in February, to 5.8 percent and 4.2 percent last March.

The debt watcher has lowered the 2020 GDP growth forecast for Asia Pacific to 0.3 percent from 4.8 percent in December.

“Compared with a year ago, the peak decline will be during the second quarter, at -1.1 percent, which would mark the first time the region’s economy, in aggregate, has shrunk for at least four decades,” S&P added.

S&P said its forecasts now imply a loss in household and corporate income of about $2.2 trillion, which will be distributed across balance sheets.

“We expect the level of activity, for the region as a whole, to get close to the pre-COVID-19 trend by 2023. The U-shape is getting flatter. Risks remain on the downside and we are watching the labor market closely,” it said.

For ASEAN alone, only Indonesia and Vietnam are expected to post growths of 1.8 and 1.2 percent, respectively.

Thailand is expected to book the biggest GDP contraction this year at 4.2 percent, followed by Singapore’s 3.8 percent, Taiwan’s 1.2 percent, and Malaysia’s 1.1 percent.

Philippine economic managers through the Cabinet-level Development Budget Coordination Committee (DBCC) originally pegged a GDP growth target of 6.5 to 7.5 percent this year.

Due to the COVID-19 pandemic, the National Economic and Development Authority (NEDA) said earlier the economy is likely to contract by 0.6 percent or grow by 4.3 percent this year, while Bangko Sentral ng Pilipinas Governor Benjamin Diokno said the GDP is likely to be negative to a growth of one percent for 2020.

Last month, Moody’s Investors Service further slashed the GDP growth forecast for the Philippines to 2.5 percent this year, while Fitch Solutions lowered its projection to four percent also for this year.

S&P said inflation in the Philippines is likely to ease to one percent this year before accelerating to 2.2 percent in 2021 and 2.5 percent in 2022.

The debt watcher expects the BSP to further cut rates by 75 basis points to an all-time low of two percent. The central bank has so far lowered interest rates by 175 basis points to a record low of 2.75 percent this year to boost market confidence and cushion the impact of the global virus outbreak.