S&P slashes Philippines growth outlook to 4.3% for 2021

MANILA, Philippines — S&P Global Ratings has downgraded the Philippines’ 2021 gross domestic product (GDP) growth forecast to 4.3 percent from an earlier six percent outlook due to the emergence of the highly contagious COVID-19 Delta variant.

The debt watcher said intermittent lockdowns have been weighing on economic activity as the emergence of new variants prompted the government to place the National Capital Region and nearby provinces under enhanced community quarantine from Aug. 6 to 20.

“The combined hit to activity from floods in parts of the Philippines and fresh lockdowns to contain the pandemic has significantly eroded what would have been a highly favorable base effect for the country,” S&P senior economist Vincent Conti said.

“The longer downturn will cause even more economic scarring. By 2025, the Philippines’ GDP will likely be 12 percent below where it would have been without the pandemic,” he said.

Philippine economic managers, through the Development Budget Coordination Committee (DBCC), cut anew the GDP growth forecast to a range of four to five percent instead of six to seven percent this year amid heightened risks brought about by the emergence of more contagious variants.

S&P said emerging Southeast Asian economies including the Philippines are facing intense headwinds from persistent COVID pandemic waves.

It said private consumption and services would be hit hardest by the pandemic, as economic costs are rising amid the new and longer lockdowns this year.

Vishrut Rana, economist for Asia Pacific at S&P, said a fresh slump in demand in emerging Southeast Asia is hitting sectors that have already faced a challenging year.

“As the pandemic drags on, balance sheets will deteriorate for households, small and midsize enterprises, banks and the wider economy, leading to more medium-run economic scarring,” Rana added.

The debt watcher pointed out the new fiscal stimulus measures announced this year in Southeast Asian economies have been more limited in scope, given that the fiscal policy space was significantly eroded during the initial pandemic escalation in 2020.

Aside from the Philippines, S&P also lowered its GDP growth projections for Malaysia, Thailand and Vietnam.

Bangko Sentral ng Pilipinas Governor Benjamin Diokno said the road to recovery remains bumpy as the GDP is rising from a period of contraction in 2020 until the first quarter of 2021.

“There is basis for cautious optimism, especially with the accelerated vaccination program. Business and consumer confidence has already started to improve, with private investments and consumption driving growth of the economy in the second quarter of this year,” Diokno said.

As more Filipinos are vaccinated, the BSP chief added that business and consumer sentiment will further improve, supporting overall economic growth.