Nomura sees slower GDP growth for Philippines

MANILA, Philippines — Japanese investment bank Nomura expects a slower economic rebound for the Philippines next year from the impact of the pandemic, prompting further easing from the Bangko Sentral ng Pilipinas (BSP) through an additional 50-basis-point rate cut in the first quarter of 2021.

In a report, Nomura said the Philippines’ gross domestic product (GDP) would recover at a slower growth of 6.8 percent instead of 7.1 percent next year after contracting by 9.8 percent this year due to the recession induced by the  pandemic.

This is well within the 6.5 to 7.5 percent GDP growth target set by Philippine economic managers for next year after a deeper contraction of 8.5 to 10 percent this year.

“Our forecast implies economic output does not return to pre-COVID levels until 2022. The main reason for our more cautious view on the pace of the recovery is the continued drag from the COVID-19 outbreak, which we think is unlikely to be brought under control until the vaccine pivot point arrives in the fourth quarter,” Nomura said.

Nomura said the Philippine government has not yet finalized any significant procurement plans and is still in the process of negotiating deals to secure a sizeable number of doses.

This means that the Philippines would be among the laggards in receiving the vaccines, let alone distributing them widely across the archipelago.

“In the meantime, the government seems to be prioritizing a further economic reopening in the fourth quarter, which some local experts warn can only be possible if facilities can absolutely guarantee observance of the minimum health standards,” it said.

Nomura expects a budget deficit of eight percent of GDP for the Philippines instead of the programmed 9.6 percent of GDP this year due to weak public sector spending as the government has only passed a small package of additional support measures.

For 2021, it said the country’s budget shortfall would narrow to 7.4 percent of GDP instead of the programmed 8.5 percent under the proposed 2021 national budget.

Furthermore, Nomura said the BSP would continue to do the heavy lifting, further slashing the benchmark rate by another 50 basis points to an all-time low of 1.50 percent in the first quarter of next year as inflation is seen slightly picking up to 2.7 percent next year from 2.5 percent this year.

“We reiterate our forecast for BSP to cut its policy rate by an additional 50 basis points to a new record low of 1.50 percent,’’ Nomura said.

It cited the latest comments made by BSP Governor Benjamin Diokno that the policy rate cuts so far totaling to 200 basis points in 2020 “are more than enough” for now.

“BSP’s monetary stance remains clearly dovish, supporting our forecast of further rate cuts early next year. In particular, despite delivering a rate cut in November, the policy statement reiterated BSP’s commitment made in the previous meeting that it stands ready to deploy its full arsenal of instruments as needed in fulfillment of its mandate to maintain price and financial stability conducive to sustainable economic growth,” Nomura said.