MANILA, Philippines — The Philippine economy is likely to contract by five percent this year due to the extent of lockdowns and the impact on tourism, said UK-based think tank Oxford Economics.
In a new research brief titled “How COVID-19 impacts vary across ASEAN-5,” the economic research firm said the coronavirus pandemic delivers the largest shock to the five largest economies in the ASEAN region since the 1997 Asian financial crisis.
These countries include the Philippines, Indonesia, Malaysia, Thailand and Singapore.
Among the five countries, declines in economic output will be steeper in the Philippines (-5.0 percent), Thailand (-5.7 percent) and Singapore (-6.0 percent).
“On the domestic front, countries with more stringent lockdowns and a higher share of discretionary spending are likely to take a heavier toll. On the external front, a heavily trade-dependent economy such as Singapore and economies with large tourism sectors, notably Philippines and Thailand, will be hard hit,” Oxford Economics said.
It noted that while the policy responses in these economies have been strong, the room for further rate cuts is narrow for some due to financial risks.
“Progress in virus containment and policy space will influence the speed of economic rebound,” the firm said.
“We expect the impact of social distancing measures on domestic activities to vary depending on the severity of lockdowns and consumer spending patterns. While Indonesia only opted for a partial lockdown, the Philippines enforced a strict lockdown lasting more than two months.”
Other than the weakening of consumption, stress in the job market is also seen in these countries.
“The large informal sector in many ASEAN economies also suggests that labor market stress could be larger than the official data is showing,” said Oxford Economics.
With investment sentiment at historic lows, private investment can be expected to contract across the board this year as firms become more cautious and postpone expansion plans to focus on improving their balance sheets.
Oxford Economics said consumer and business confidence are expected to pick up faster in economies that manage to contain the virus successfully.
Risks to outlook in ASEAN-5 economies remain tilted to the downside because of the threat of a second wave of infections.
“This would be even more problematic for countries that implemented a stringent lockdown early on and don’t have much policy space left to support the economy during a second lockdown,” said Oxford Economics.