Economic scar runs the deepest for Philippines if rebound stalls
MANILA, Philippines — The Philippines is most at risk of sustaining permanent economic scars from the pandemic should recovery in Southeast Asia is pushed back, a global debt watcher said.
In a report on Monday, S&P Global Ratings said the Philippines would likely see a "permanent loss" of 12.6% should economic recovery stall for 6 months. Permanent loss is the gap between S&P's estimate of the achievable new normal for an economy and the pre-COVID trend.
Under this scenario, output is unlikely to return to pre-pandemic level until May 2022, later than the credit rating agency's baseline forecast for the Philippines to fully recoup losses by the end of this year. This would also shave 2.5 percentage points off of S&P's 9.6% baseline growth projection for the country in 2021.
Apart from the Philippines, Thailand is also seen sustaining a large permanent loss but a lower rate of 10.8% should rebound from pandemic shock is delayed for half a year.
"The Philippines suffered from a deep contraction in 2020 amid exceptionally tight mobility restrictions. For Thailand, the issue is structural and related to the tourism sector which is expected to be one of the last industries to recover from COVID," S&P said.
After Philippines and Thailand, Malaysia is forecast to sustain a permanent loss of 8.6% under the same scenario, while Indonesia is projected to suffer from a milder 7.7% damage. For the entire Southeast Asia, S&P estimated a permanent loss of 9.2%.
"Southeast Asia has been struggling with sporadic outbreaks of COVID-19. The major emerging markets in this region--Indonesia, Malaysia, the Philippines, and Thailand--are living with the effects of new waves that only recently look to have peaked. This could prolong their paths to recovery," S&P said.
At home, the government's pandemic task force has recommended to President Rodrigo Duterte to place the entire country under modified general community quarantine (MGCQ), the lowest quarantine level, starting next month to revive the economy.
But it appears that plans to further reopen is not inspiring confidence among consumers amid a lack of broad immunization program and after the detection of two virus mutations in Cebu last week. According to S&P, this creates a big problem that is otherwise not unique to the Philippines.
"In our view, the biggest threat to timely economic recovery is individual consumer behavior, as people stay home more and spend less," S&P said. "Household spending is key for growth in these (Southeast Asian) economies."
Growth-wise, a 6-month delay in recovery would slow growth this year to 7.1% as projected by S&P. Shorter pushbacks of 2 months or a month would result into gross domestic product expanding 7.4% or 7.7%, respectively. The baseline projection was for a 9.6% growth this year.
Moving forward, S&P said Southeast Asia may benefit from improving demand in US and China while consumer appetite in the region remains anemic. This would be true once the nascent Biden administration rolls out a massive spending plan to blunt the pandemic pain while China gears ahead its recovery. However, the windfall would not be enough to fully shore up the region's own rebound.
"The EMs of Southeast Asia cannot rely on external demand alone to drive a pick-up to above-trend growth later this year. Still, these tailwinds could add momentum to a domestic recovery built on light at the end of the pandemic tunnel," S&P said.
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