MANILA, Philippines — Moody’s Investors Service is now looking at a slower rebound for the Philippines from the recession, lowering the country’s 2021 gross domestic product (GDP) growth forecast to 5.8 percent from the original target of 6.3 percent.
In a report, the debt watcher said the degree and pace of recovery of the Philippine economy are subject to uncertainties related to the COVID-19 pandemic and the rollout of vaccines.
“Recent containment measures imposed since March 2021, although more lenient than the severe lockdowns imposed in 2020, will threaten our expectation of a sharp rebound in real GDP growth in 2021,” Moody’s said.
“Strong domestic demand has typically provided a buffer against external economic shocks, such as those posed by cyclical swings in the global trade and commodity prices. The pandemic poses an acute cyclical challenge to economic strength,” it said.
Amid the improvement in consumer spending and investment, underlined by fiscal support from the government with the reopening of the economy, Moody’s said Philippine economic growth may accelerate to 6.5 percent next year.
“Despite the historically large economic contraction in 2020, we expect recovery to restore rapid economic growth relative to peers,” Moody’s said.
It said its assessment of the Philippines’ institutions and governance strength reflects the balance between weak political and legal governance against comparatively strong macroeconomic and fiscal policy effectiveness.
It also said the Philippines has demonstrated an ability to pursue the government’s socioeconomic and fiscal reform agenda despite increasing political noise and a corresponding deterioration in some of the country’s rankings in the Worldwide Governance Indicators (WGI), particularly for the rule of law and control of corruption.
The debt watcher said prudent fiscal management has contributed to the large improvement in the Philippines’ fiscal metrics over the past decade, while the Bangko Sentral ng Pilipinas (BSP) has established a strong track record of maintaining broad monetary and financial stability.
“We incorporate a one-notch negative adjustment for credit conditions to capture the risks associated with rapid credit growth in excess of nominal GDP in recent years, particularly considering the elevated real estate exposure in the banking system,” Moody’s said.
The credit rating agency sees a rebound in bank lending with a growth of five percent this year and 15 percent next year after contracting by one percent last year due to uncertainties brought about by the pandemic.
“We expect credit growth to rebound to around five percent in 2021 and 15 percent in 2022 as the BSP maintains record-low policy rates and lower banks’ reserve requirements to encourage lending,” Moody’s said.
According to Moody’s, the commitment of the BSP to lower the reserve requirement ratio to single-digit level by 2023 would further support the banking system’s liquidity that is mainly funded by customer deposits with minimal reliance on wholesale funding.