By Chino S. Leyco
One of the three-major international debt-watchers warned that the Philippine economy will shrink worse than the Duterte administration’s expectations this year due to rapid and widening spread of the coronavirus outbreak.
In a credit opinion released yesterday, Moody’s Investors Service said the country’s economy, as measured by its gross domestic product (GDP), will decline by 2 percent this year amid economic and financial shocks caused by COVID-19.
The forecast of Moody’s is worse than the government’s initially estimated 2020 economic performance of flat growth to negative 0.8 percent.
But despite the contraction, Moody’s is keeping the country’s credit rating currently at one notch above the minimum investment grade. Its outlook is also stable.
“The rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices, and financial market turmoil are creating a severe and extensive economic and financial shock,” Moody’s said.
The Philippines’ expected full-year economic contraction in 2020 is the first since 1998. The government announced last week that GDP decreased by 0.2 percent between January and March.
The government’s economic managers expect the contraction to deepen further in the second-quarter of the year due to enhanced community quarantine (ECQ) measures over Luzon, including Metro Manila.
“As the ECQ will encompass much of the second quarter, we expect high-frequency data to continue to deteriorate despite the implementation of countercyclical policy stimulus, including handouts to vulnerable, low-income households,” Moody’s said.
“Growth will also be pressured by weakening external demand [amid] widening global outbreak through the second quarter,” it added.
Moody’s also said that remittances would soften substantially, reflecting not only job losses and falling income among overseas Filipinos, but also severely restricted deployment of new workers abroad.
“Lower growth and substantial fiscal stimulus will contribute to a higher general government debt burden that we project to rise to around 45 percent of GDP in the next few years,” the rating agency said.
“We expect the current account deficit to remain narrow and stable in 2020 as the negative impact on exports, tourism, remittances and other services receipts will be offset somewhat by lower oil prices and subdued import demand on account of slower economic growth,” Moody’s said.
“Even as emerging markets globally endured capital flight, the Philippines’ gross international reserves reached a record high of $89.0 billion in March 2020, implying the stability of the overall balance of payments,” it concluded.