Fitch unit sees deeper 9.6% contraction for Philippines

MANILA, Philippines — Fitch Solutions Country & Risk Industry Research expects a deeper economic contraction for the Philippines for this year, but expects a stronger rebound next year on the back of supportive fiscal and monetary policy stances.

The research arm of the Fitch Group expects the Philippine economy to contract by a deeper 9.6 percent this year after shrinking by 10 percent from January to September.

The Philippines slipped into recession with the gross domestic product shrinking by 11.5 percent in the third quarter, a record 16.9 percent in the second, and 0.7 percent in the first quarter as the country implemented the longest and strictest lockdowns to contain the spread of COVID-19.

“We at Fitch Solutions believe the Philippine economy will struggle to maintain its recovery momentum in the fourth quarter as domestic containment measures weigh on activity and demand,” it said in its latest commentary.

It also said the economy has been devastated by the COVID-19 pandemic, causing lockdowns and restrictions on mobility which resulted in weak consumer demand.

“In particular, curbs on domestic activity to suppress the spread of the virus have severely dragged on the Philippine economy, in which private consumption and investment account for around 100 percent of output,” it said.

Fitch Solutions warned the risks from another surge in cases if domestic prevention measures are relaxed remain high as COVID-19 cases breached the 400,000 level with close to 7,700 deaths.

“We expect this to hinder the pace of the economic recovery in the fourth quarter and the first half of next year, ” it said.

According to Fitch Solutions, economic activity would remain constrained by pandemic-related restrictions.

“We expect the economy to maintain its recovery at a modest pace in the fourth quarter, noting leading indicators point to continued challenges for the economy,” it said.

It also said that the Manufacturing Purchasing Managers’ Index (PMI) indicated a stalled recovery in production with a reading of 48.5 in October from 50.1 in September.

For 2021, Fitch Solutions said the Philippines would bounce back with a stronger growth of 7.6 percent due to base effects and an expectation for a government-led infrastructure drive.

“With real GDP around 13.6 percent below end-2019 levels, there remains scope for the economy to expand at a faster pace without hitting constraints over the coming quarters,” Fitch Solutions said.