Fitch unit now sees GDP contracting

MANILA, Philippines — Fitch Solutions Country Risk & Industry Research now expects the Philippine gross domestic product (GDP) to contract by two percent instead of growing by 0.5 percent this year as the shock from the coronavirus pandemic would drag the country into recession.

The research unit of the Fitch Group said the coronavirus disease 2019 or COVID-19 outbreak and the enhanced community quarantine imposed by Malacañang have taken its toll on the economy.

As a result, the country’s GDP contracted by 0.2 percent in the first quarter of the year, ending 84 straight quarters of positive growth. The Philippine economy last contracted in the fourth quarter of 1998 with three percent.

It would be recalled the Philippines was last in recession in 1998 when the GDP contracted by 0.5 percent during the height of the Asian financial crisis.

“The Q120 reading came in below our expectations, and as we flagged, we are become increasingly aware of how significant the impact of lockdown measures can be on growth readings. As such, with the Philippines in lockdown through April and into May, the drag on growth will pull the economy into recession,” it added.

Fitch Solutions pointed out there would still be some drag initially from the lockdown even if the enhanced community quarantine measures are eased in the second and third quarters.

“The Q120 reading surprised to the downside, but also signals how deep growth is likely to contract in Q220,” the Fitch unit said.

According to Fitch Solutions, key to its revision is an expectation for household consumption to prove vulnerable through the year on the back of a worsening outlook for household incomes and lower confidence.

“As such, the key driver for our weaker outlook is the belief that the slowdown in domestic activity will be more significant than we had initially anticipated. Household consumption will prove vulnerable through the year on the back of a worsening outlook for household incomes and lower confidence,” it said.

Household consumption accounted for 74.6 percent of the Philippine GDP last year.

Fitch Solutions said external demand would provide little support as the global economy falls into recession and a positive contribution from net exports this year would be more a signal of depressed domestic demand for imports than a recovery in the Philippines export sector.