Philippine GDP contraction likely highest in Asia-Pacific – S&P

MANILA, Philippines — The Philippines may post the biggest economic contraction in Asia-Pacific at almost 10 percent this year after imposing one of the world’s longest and strictest lockdowns to slow the spread of COVID-19, according to S&P Global Ratings.

In its latest economic research titled “Asia-Pacific’s recovery: The hard work begins,” the debt watcher said it now expects the Philippine economy to contract by 9.5 percent instead of three percent this year, implying a larger permanent loss in output brought about by the  pandemic.

“Renewed lockdowns from August in major metropolitan areas, including Metro Manila, together with lingering household caution amid stubbornly high COVID-19 infection rates and limited fiscal policy support, are suppressing consumer spending and resulting in widespread job losses,” S&P said.

The expected contraction in the Philippines is bigger than India’s nine percent, Hong Kong’s 7.2 percent, Thailand’s 7.2 percent, Singapore’s 5.8 percent, New Zealand’s 5.5 percent, Japan’s 5.4 percent, Malaysia’s five percent, Australia’s four percent, Indonesia’s 1.1 percent and South Korea’s 0.9 percent.

Countries in the region which are expected to book growth this year include China with 2.1 percent, Vietnam with 1.9 percent and Taiwan with one percent.

The Philippine economy contracted by nine percent in the first semester as the entire Luzon was placed under enhanced community quarantine in mid-March to contain the spread of the virus.

The country slipped into recession for the first time in more than a decade as the GDP contracted by a record 16.5 percent in the second quarter from 0.7 percent in the first quarter. The economy last contracted by 0.5 percent in 1998 due to the Asian financial crisis.

For 2021, S&P expects the Philippine economy to post a rebound with a GDP growth of 9.6 percent.

“Assuming an eventual flattening of the COVID curve, especially in 2021, activity can begin to normalize.

However, we expect permanent damage to corporate sector balance sheets and the labor market, which will leave GDP well short of where it would likely have been in the absence of COVID,” S&P said.

Economic managers, through the Development Budget Coordination Committee (DBCC), now expect a deeper GDP contraction of 4.4 to 6.6 percent instead of two to 3.4 percent this year and a slower recovery with a growth of 6.5 to 7.5 percent instead of eight to nine percent next year.

In a separate forecast, the ASEAN+3 Macroeconomic Research Office (AMRO) said the Philippine economy can now be expected to decline at a faster pace of 7.6 percent this year but rebound at a faster pace of 6.6 percent in 2021.

The ASEAN+3 region groups the 10 ASEAN member states with China, Japan and Korea.

“We are projecting a strong V-shaped recovery in GDP growth in 2021, particularly for the Plus-3. The region as a whole is projected to expand at 6.7 percent, with all economies forecast to return to positive growth—predicated on the effective containment of the pandemic, both regionally and globally, and on the assumption that exits from policy measures proceed smoothly,” said AMRO.