More banks expect deeper contraction for Philippines this year

MANILA, Philippines — More investment banks and think tanks are looking at a bleaker economic outlook for the Philippines with a deeper economic contraction seen this year for implementing one of the longest and strictest lockdowns to contain the spread of the coronavirus disease 2019 or COVID-19 pandemic.

Security Bank Corp., through its trust and asset management group, expects the country’s GDP to shrink by 7.7 percent this year after growing by six percent last year.

The Philippine economy slipped into recession after contracting by a record 16.5 percent in the second quarter from 0.7percent in the first quarter as the entire Luzon was placed under enhanced community quarantine in the middle of March.

Noel Reyes, chief investment officer Security Bank’s trust and asset management group, said inflation played a large part into the crash that ultimately bled into consumption during the Asian financial crisis in 1997 and the global financial crisis in 2008.

“However, for COVID-19, it was the decline in consumption and business closures, because of lockdowns that bled into the financial system which in return led us to negative GDP growth territory,” Reyes said.

Prior to the relaxation of the lockdown as the National Capital Region (NCR) shifted to general community quarantine in June to restart the economy, most Filipinos opted continue to stay at home, spend only on essentials, and refrained from purchasing non-essential items.

To soften the blow of the COVID-19 pandemic, the Bangko Sentral ng Pilipinas (BSP) pursued aggressive easing measures including lowering interest rates by 175 basis points and slashing the reserve requirement ratios for banks that have so far unleashed P1.4 trillion into the financial system.

“The good liquidity brought by the forceful response of the BSP and low interest rates put the country in a good position for consumption rebound,” Reyes said.

Security Bank president and chief executive officer Sanjiv Vohra said consumer confidence is expected to return once a vaccine or cure that could end the pandemic is found.

“It’s a delicate balancing act for sure, and the key will be to strengthen our public health so that we make sure our workforce and our economy will remain productive, and business and consumer confidence returns. Locally, we have low-interest rates and good liquidity. We also have a forceful BSP response, resilient currency, and a strong potential for economic and consumption rebound,” Vohra said.

According to Security Bank, the country’s GDP is expected to rebound with a growth of 3.5 percent next year and return to the six percent growth path by 2023.