Slower recovery expected for countries faltering on COVID-19

ECONOMIC recovery in the Asia Pacific will take divergent paths, with countries failing to contain their outbreaks such as India and the Philippines expected to take longer to revive, S&P Global Ratings said.

S&P Global said the result might be a so-called “K-shaped recovery” with the charts of some economies tracking downward while the rest show gains.

“Emerging markets in the region, including India and the Philippines, continue to struggle to contain the outbreak and its economic impact,” it said in a note Tuesday.

Even economies that had contained the virus earlier are also facing setbacks with case counts rising again in the absence of a vaccine, S&P Global said.

“The longer economies operate at a subnormal levels, the sharper the pain and credit impact across corporates, households, and governments,” it said.

Last week, S&P said it expects Philippine gross domestic product to contract by 9.5% this year, downgrading from the minus 3% estimate it issued in June and the minus 4.5% to minus 6.6% range provided by the government. S&P expects the Asia-Pacific economy to contract by 2% in 2020 as the pandemic lingers on.

“Another obstacle for a stronger economic recovery is households’ repayment capacity, which is also weakening. The blow to employment and household incomes could take longer to… restore in many markets,” it said.

In the Philippines, the jobless rate was 10% in July, narrowing from the record 17.7% in April but still much higher than the year-earlier 5.4%, according to the Philippine Statistics Authority. The July rate is equivalent to around 4.571 million jobless workers.

More than 195,000 overseas Filipino workers have also been repatriated as of Sept. 27.

“We expect employment to return to pre-COVID trends only by 2022, at the earliest, in most cases. This will put a lid on wages, drag on consumer spending, and keep inflation low across the region, S&P Global said.

Even with no end to the pandemic in sight, relief measures like temporary tax cuts, wage subsidies, and loan moratoriums have been tapering off and will mean banks, businesses, and households will need to “make hard decisions,” S&P Global said.

On the monetary side, S&P expects central banks have no choice but to “keep policy exceptionally easy” as credit becomes harder to come by.

“For some emerging markets, the challenge will be to maintain sufficient support and policy credibility at the same time,” it said.

The Bangko Sentral ng Pilipinas has reduced benchmark policy rates by 175 bps, reducing the overnight reverse repurchase, lending, and deposit facilities to record lows of 2.25%, 2.75%, and 1.75%, respectively.

According to a ����ý poll last week, 14 out of 15 economists expect the Monetary Board to keep rates steady Thursday to leave some ammunition in reserve in case the recovery lags, while also allowing prior easing moves to cycle through the financial system.

In terms of ratings, S&P Global said negative rating actions “have tapered for the region in the past quarter with no defaults by rated issuers.”

“However, the net negative outlook bias worsened to nearly one-fifth of ratings. Consequently, the likelihood of downgrades and defaults persists,” it said.

S&P affirmed its BBB+ long-term credit rating with a stable outlook for the Philippines in May, projecting a recovery next year. — Luz Wendy T. Noble