PHL economic outlook dims

By Beatrice M. Laforga, Reporter

CREDIT RATING agencies and other institutions are likely to further cut their gross domestic product (GDP) outlook for the Philippines this year, after third-quarter data showed a slower-than-expected pace of recovery and the country continues to struggle to contain the coronavirus disease 2019 (COVID-19) pandemic.

“The third-quarter outturn for real GDP growth of -11.5% year on year reinforces the downside risks to our current forecasts. While the quarter-on-quarter rebound is one of the largest that we’ve seen in the region, the continued contraction in year-on-year terms highlights the magnitude of the negative impact of the ECQ earlier in the year,” said Christian de Guzman, senior vice-president of Sovereign Risk Group at Moody’s Investors Service in an e-mail last week.

The economy shrank by 11.5% in the third quarter, easing from the 16.9% slump in the second quarter. Economic output fell 10% in the first nine months of the year, exceeding the government’s projected 4.5-6.6% contraction for the full year.

Mr. De Guzman said recovery prospects will depend on the country’s ability to contain the spread of COVID-19 without resorting to a strict lockdown.

The Health department reported 1,530 new cases of COVID-19, bringing the total to 407,838, as of Sunday.

For Fitch Ratings, the third-quarter GDP result was weaker than expected but is unlikely to affect the Philippines’ recovery prospects for 2021. Fitch expects the Philippine economy to shrink by 8% this year before growing by 9% in 2021.

“The Q3 GDP outturn was weaker than we expected, and together with the downward revision to Q2, we see some modest downside risk to our existing -8% GDP growth projection for 2020. That said, the Q3 outturn does not alter our view of the Philippines’ recovery prospects for 2021 which remain intact despite ongoing risks from the virus, both domestically and globally,” Sagarika Chandra, associate director for Asia-Pacific sovereigns at Fitch Ratings said in an e-mail on Friday.

Ms. Chandra said they will look at the government’s fiscal consolidation plans and its medium-term policy framework post-crisis in deciding on its rating outlook for the country.

The debt watcher in May downgraded its outlook for the Philippines to “stable” from “positive,” and affirmed the country’s “BBB” credit rating.

“We will also assess the extent to which the crisis may affect the Philippines’ otherwise strong medium-term growth potential, which has supported the country’s BBB sovereign rating,” she added.

Meanwhile, the ASEAN+3 Macroeconomic Research Office’s (AMRO) is likely to lower its forecast for the Philippine economy this year.

“In view of recently released Q3 GDP growth, which is lower than our expectation, we are likely to revise our forecast downward in the next round of our economic outlook updates,” Zhiwen Jiao, AMRO country economist for the Philippines, said in an e-mail last week.

AMRO projected the economy will drop by 7.6% this year, considering the rising number of coronavirus cases and two-week lockdown in August. It expects Philippine GDP to grow by 6.6% in 2021.

“We will continue to closely monitor the country’s COVID-19 pandemic situation and lockdown policies, economic conditions both domestically and internationally, as well as stimulus policies for households and businesses,” Mr. Jiao said.

The Organization for Economic Cooperation and Development (OECD) on Friday said it expects the Philippine economy to shrink by 8.4% this year, from the previous 3.2% drop it gave in July.

OECD Development Centre Head of Asia Desk Kensuke Tanaka said policy support from both fiscal and monetary measures will have to continue to boost the Philippines’ recovery prospects amid weak investment, consumption, job market and remittances.

“In particular, the special attention will be needed for financial market stability. Delay of infrastructure investment will also be another downside risk,” he said.