Moody’s sees deeper GDP slump of 7%

by Lawrence Agcaoili (The Philippine Star), 4 Sep 2020

MANILA, Philippines — Moody’s Investors Service has revised to seven percent its 2020 economic contraction target for the Philippines after the country slipped into a pandemic-induced recession in the second quarter.

In its latest credit opinion, Moody’s said the Philippine economy may contract by seven percent this year, deeper than the original projection of a 4.5 percent drop.

“In the context of these trends, 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, we have lowered our full-year real GDP growth forecast to a contraction of seven percent from our earlier expectation of a 4.5 percent drop,” Moody’s said.

Moody’s also cited the record unemployment rate of 17.7 percent in April, as well as the 9.9 percent drop in remittances from overseas Filipino workers (OFWs) in the second quarter amid huge displacements.

The economy contracted by nine percent in the first half after shrinking by a record 16.5 percent in the second quarter as the Philippines imposed one of the longest and strictest lockdowns in the world.

As a result, the Development Budget Coordination Committee (DBCC) further revised its GDP projection to a contraction of 4.4 to 6.6 percent instead of two to 3.4 percent

this year and a slower recovery of 6.5 to 7.5 percent instead of eight to nine percent next year.

Moody’s expects a sharp deterioration in the government’s fiscal position for 2020 with a budget deficit of 6.8 percent of gross domestic product (GDP) this year from 1.5 percent of GDP last year due to large shortfalls in revenue.

It also said the Duterte administration unveiled the proposed P4.5 trillion budget for 2021 as an acknowledgement of the need for sustained fiscal support.

Moody’s said the country’s credit profile has been characterized in recent years by a strong economic performance, strengthening fiscal position and limited vulnerability to external shocks.

However, the debt watcher said the global coronavirus outbreak may disrupt and potentially reverse these trends.

“Continued domestic transmission poses risks of a wider return to stricter lockdown conditions, impeding the recovery projected to commence during the second half. Lower remittances from overseas Filipinos could also weigh on incomes and consumption to a greater extent than we currently estimate,” it said.

The credit rating agency expects the Philippine economy to rebound with a 6.8 percent growth next year.