Debt-watcher Moody’s Investors Service has lowered its economic forecast for the Philippines following the deep contraction seen in the second-quarter due to the coronavirus pandemic.

In its credit opinion released yesterday, Moody’s said that the country’s economy, as measured by the gross domestic product (GDP), is likely to drop by 7.0 percent, deeper than its earlier projection of 4.5 percent contraction.

Citing unfavorable trends in the Philippines, Moody said it needed to revise its forecast as “our projection of an economic recovery in the second half—while still intact—will be less robust than previously assumed.”

Moody’s said the record GDP contraction in April to June, which put the country into a technical recession, reflected the “severe impact” of the enhanced community quarrying on domestic demand.

In the second-quarter, Moody said that household consumption fell 15.5 percent, while gross fixed capital formation plunged 53.5 percent, which contributed to a collapse in import demand of around 40 percent.

Exports of goods and services also fell 37 percent during the quitter, reflecting similar pressures on external demand on account of the global pandemic shock, it noted.

But government consumption rose 22.1 percent year-on-year, which Moody’s attributed on “base effects” from weak public spending in the first half of last year due to delays to the implementation of the national budget.

But amid rising coronavirus infections, Moody’s said the government had reimposed tighter containment measures for Metro Manila and surrounding areas during the first two weeks of August that delayed the expected economic recovery.

Curtailment measures have since eased for Metro Manila and adjacent provinces, which have now been placed under general community quarantine, while those for a number of smaller municipalities have been tightened.

“A sharp deterioration in labor market conditions and faltering remittance inflows has weighed on consumer sentiment and spending,” Moody’s said. Unemployment rate rose to a record 17.7 percent in the second-quarter of 2020, overseas Filipino remittances fell 9.9 percent year-on-year during the period.

“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 percent, down from our earlier expectation of a 4.5 percent drop,” Moody’s said.