MOODY’S INVESTORS Service slashed its gross domestic product (GDP) forecast for the Philippines to -7% this year, after a deep recession in the first half dented hopes for a quick economic rebound.
“Our projection of an economic recovery in the second half — while still intact — will be less robust than previously assumed. Combining this view with the sharp contraction over the first six months of 2020, we have lowered our full-year real GDP growth forecast to a contraction of 7.0%, down from our earlier expectation of a 4.5% drop,” Moody’s said in a credit opinion on the Philippines.
Moody’s gave a more pessimistic outlook than the 4.5-6.6% contraction for 2020 projected by the government.
The economy fell into its first recession in 29 years after GDP shrank by 16.5% in the second quarter when most parts of the country were placed under an enhanced community quarantine (ECQ) to contain the coronavirus pandemic.
“The record contraction in the April-June quarter reflected the severe impact of the ECQ on domestic demand with household consumption falling 15.5% and gross fixed capital formation plunging 53.5%, both of which contributed to a collapse in import demand of around 40%,” Moody’s said.
It also cited the bleak labor market conditions and decline in remittance inflows that have dampened consumer spending.
Unemployment in July stood at 10%, representing 4.6 million jobless Filipinos, according to the Philippine Statistics Authority. This is an improvement against the 17.7% seen in April although still beyond the 5.4% recorded in July 2019.
Moody’s also noted the sharp drop in manufacturing conditions as operations have been disrupted by changing quarantine levels.
For 2021, Moody’s expects the country’s GDP to grow by 6.8%, a tad faster than the 6.5% it gave in June.
The credit rater in July affirmed the Philippines’ Baa2 rating, which was given in December 2014. It also maintained a stable outlook, suggesting the rating is likely to be maintained over the next six months or two years.
“The stable outlook reflects the view that the recovery from the acute shock posed by the coronavirus outbreak will restore rapid economic growth relative to peers, complemented by the stabilization and eventual reversal of the deterioration in fiscal and debt metrics,” it said on Thursday.
However, Moody’s admitted the near-term economic outlook for the Philippines remains uncertain as coronavirus infections continued to rise globally, affecting its key trading partners and remittance sources.
“Continued domestic transmission poses risks of a wider return to stricter lockdown conditions, impeding the recovery projected to commence during the second half of 2020,” it said.
The Health department on Thursday reported 1,987 additional coronavirus infections, bringing the total to 228,403.
Moody’s also noted lower remittances from OFWs “could also weigh on incomes and consumption to a greater extent than we currently estimate.”
Remittance inflows dropped 4.2% to $14.019 billion in the first six months of 2020. The central bank projects remittances to decline by 5% this year due to the coronavirus crisis before growing by 4% in 2021. — Luz Wendy T. Noble