Moody’s Analytics further cuts Philippines GDP forecast to 5%

MANILA, Philippines — Moody’s Analytics has further slashed the projected gross domestic product (GDP) growth of the Philippines to five instead of 6.3 percent this year due to the imposition of strict lockdown and quarantine measures amid the resurgence of COVID-19 infections.

Shahana Mukherjee, economist at Moody’s Analytics, said the country’s GDP likely contracted by three percent in the first quarter of the year following an 8.3 percent contraction in the fourth quarter of last year.

“We still expect the economy to grow in 2021, but we have lowered our GDP growth estimate to five percent in 2021 in light of the new restrictions,” Mukherjee said.

The latest forecast of the research arm of the Moody’s Group is way below the government’s 6.5 to 7.5 percent GDP growth target set for this year. The Cabinet-level Development Budget Coordination Committee (DBCC) is set to meet this year to review the target as the National Capital Region and adjacent provinces (NCR Plus) were placed under enhanced community quarantine from March 29 to April 11 and under modified enhanced community quarantine from April 12 to May 14.

The Philippines slipped into recession with a record 9.6 percent GDP contraction last year as the economy stalled when the government imposed the longest and strictest lockdown in the world to slow the spread of COVID-19.

Mukherjee said the Philippine economy suffered a significant hit to growth in 2020 due to the pandemic.

“Although domestic activity started to recover in the second half of the year, the resurgence in new cases, which intensified through March 2021, is expected to constrain domestic activity and has thus increased the uncertainty over the country’s recovery prospects in the near term,” she said.

COVID-19 cases in the Philippines have breached 1.1 million, with over 18,000 deaths.

To support the recovery from the pandemic-induced recession, Mukherjee said the Bangko Sentral ng Pilipinas (BSP) is likely to maintain an accommodative stance by maintaining a low interest rate regime.

The Philippine central bank emerged as one of the most aggressive central banks in the world last year after is slashed interest rates by 200 basis points bringing the benchmark interest rate to an all-time low of two percent as part of its COVID-19 response measures.

The economist said the central bank’s Monetary Board is likely to keep interest rates on hold this week.

“With the resurgence yet to settle, we expect the central bank to maintain its accommodative stance for the next several months and prioritize economic recovery and growth over short-term cost pressures, which are contributing to higher prices,” Mukherjee added.

The COVID-19 response measures of the BSP unleashed P2 trillion into the financial system to cushion the impact of the pandemic on the economy.