OECD cuts Philippine growth outlook

By Beatrice M. Laforga, Reporter

The Philippines is expected to experience the worst economic contraction this year among five economies of the Association of Southeast Asian Nations (ASEAN-5) after failing to contain a coronavirus pandemic that could further limit spending and investment, according to the Organization for Economic Cooperation and Development (OECD).

The Philippine economy is likely to shrink by 8.4% this year, the OECD said in the November update of its biannual report Economic Outlook for Southeast Asia, China and India. This is worse than its 3.2% contraction forecast in July.

It expects economic contractions of 8.2% for Thailand, 6.9% for Malaysia and 3.3% for Indonesia, as well as 1.5% growth for Vietnam.

“Differentiated measures to contain the pandemic will be in effect across the country through at least October, as the Philippines’ COVID-19 case tally exceeded 350,000 as of mid-October,” the OECD said. “These restrictions add to the ongoing pressure on private consumption and investment spending.”

Household spending accounted for 73% of the country’s economic output in the third quarter, while the share of investment was 18%.

Philippine real gross domestic product would return to growth of 6.2% next year assuming economic output starts to recover toward the end of the year, in part supported by the government’s pledge to quicken spending on public infrastructure, it added.

The economy shrank by 11.5% in the third quarter and updated data showed the contraction in the second quarter was worse at 16.9%

The OECD had not yet taken these latest data into account in its report.

The government allotted P1.12 trillion for infrastructure projects under next year’s P4.5-trillion spending plan as it seeks to generate 1.7 million jobs and pump-prime the economy.

The government is banking on the multiplier effects from infrastructure spending to prop up the economy, aside from relief packages including a measure to lower the corporate income tax and create a special vehicle where banks can offload their bad assets.

The OECD said signs of recovery were evident in the second half, adding that the availability of a treatment or vaccine for the coronavirus would speed up the recovery for all economies.

But renewed tensions between the US and China remained a concern for ASEAN countries, while a surge in bad loans and a potential sharp correction of asset prices that could result in huge capital outflows could threaten the region’s growth.

The resurgence of coronavirus infections that could result in more lockdowns is still a threat to the region’s economic rebound, it added.

“The strength of each country’s economic recovery will depend not only on the evolution of the epidemiological situation, but also on structural factors and the capacity to respond with stabilizing policies,” the OECD said.

It also warned about the country’s rising debt, which could strain the state’s ability to pay maturing debt on infrastructure projects and jeopardize investment in future projects.

The government plans to borrow P3 trillion this year as it plugs the budget deficit — expected to hit 9.6% of economic output — after increasing spending on its pandemic response and falling tax collections.

It borrowed P2.56 trillion between January and September, 179% higher than a year earlier, according to official data.

The government’s debt stock is expected to reach P10.16 trillion by year-end, which is equivalent to 53.9% of GDP. Its outstanding debt stood at P9.369 trillion at the end of September.

‘STRONG REBOUND’

The Asian Development Bank expects the Philippine economy to shrink by 7.3% this year, worse than its previous forecast of a 3.8% contraction. The World Bank expects the economy to shrink by 6.9%, worse than its earlier expectation of a 1.9% contraction.

The International Monetary Fund (IMF) also cut its outlook to an 8.3% contraction from 3.6%.

The three main credit rating agencies also gave a dimmer economic outlook — contractions of 9.5% from S&P Global Ratings, 8% from Fitch Ratings and 7% from Moody’s Investors Service.

Still, Finance Secretary Carlos G. Dominguez III said “the worst seems to be over” for the country.

The economy is geared for a strong rebound next year, supported by expected improvements in the last quarter, he told an online forum hosted by the US Embassy.

He also said the government had shifted its response to the pandemic by using strict lockdowns only as a last resort to help the ailing economy recover. This is along with recent moves to allow more businesses to open and expand the capacity of mass transit.

Mr. Dominguez said the Philippines is being positioned to attract more private investments from the US as the economy reopens further and companies overseas reshuffle their suppliers from China to other Asian countries.

“Next year, we expect the Philippine economy to post a strong rebound,” Finance Secretary Carlos G. Dominguez III said at an online forum on Friday. “We hope that the Philippines’ strong fundamentals, fiscal stamina, and effective governance will continue to make us a promising investment destination and a growing market for US investors.”

A number of American companies are looking to expand or move from China to Asia, Philippine Ambassador to the US Jose Manuel Romualdez told the same forum, adding that the Philippines would want to become a preferred destination.

Mr. Dominguez said US companies should consider investing in the Philippines’ growing agriculture sector as the country moves to promote the use of digital technology.

“Manufacturing is another key sector that we will revitalize in the post-pandemic era,” he said. “This is a good time for the US firms that are looking to diversify their supply chains to see the Philippines as a viable source of intermediate products and services.”

The US was the country’s third-largest export market in September, behind Japan and China, according to government data. The US was the country’s fifth biggest source of imports.