PH recovery from crisis seen to lag behind peers
Monetary easing may not be enough
Near-term recovery from the Covid-19-induced economic crisis will be the slowest in the Philippines, India and Indonesia among Asian countries as they struggled to contain the virus, although they were poised to resume stronger medium-term growth post-pandemic given their solid macro fundamentals.
In a webinar, Oxford Economics’ That chinamoorthy Krshnan and head of India and Southeast Asia Priyanka Kishore noted that the Philippines, India and Singapore had the most stringent and prolonged COVID-19 lockdowns in the region. The three began easing restrictions in May. But in the case of the Philippines, Kishore said “mobility is beginning to worsen again in recent days” as the number of COVID-19 infections continued to rise.
Cases in the Philippines exceeded 50,000 on Wednesday.
Kishore said the Philippines, India and Indonesia were still “struggling to get past the peak of the pandemic.”
She noted that even as economies opened up, mobility among people and goods would still be strongly correlated to COVID-19 containment.
It also didn’t help that in the Philippines, output losses due to Covid-19—earlier estimated by Oxford Economics at about 5.8 percent of gross domestic product (Gdp)—were bigger than the government’s direct fiscal response measures equivalent to only 2.4 percent of GDP.
“Fiscal response is weaker both in India and the Philippines,” Kishore said. While the Bangko Sentral ng Pilipinas (BSP) had cut key interest rates by 175 basis points —the biggest cumulative reduction in the region—so far this year, Kishore said “monetary policy is not a perfect substitute” for fiscal support.
The BSP’S surprise 50-basis point cut in the policy rate to 2.25 percent last month was expected to “help mitigate the downside risks to growth and boost market confidence,” Governor Benjamin Diokno said.
Across the region, Kishore said “policy transmission is not strong in each of these economies,” referring to the impact of the rate cuts on the real economy.
Oxford Economics had projected the Philippines’ GDP to shrink by 6.9 percent in 2020, before rebounding in 2021 to be the fastest-growing economy in the region due to base effects.
But Kishore said they were revisiting earlier 2021 growth forecasts as these did not take into consideration a possible “second wave” of COVID-19 infections, a downside risk for Asian economies.
In a separate report titled “Hello from the other side-asia’s Bigger Structural Challenges Unmasked,” Morgan Stanley Research said the medium-term economic recovery and growth prospects for the Philippines, India and Indonesia were the best in Asia due to their relatively lower debt, better institutional ability to push through reforms, and benign demography as a counter to deglobalization.
“India, Indonesia and the Philippines have been some of the strongest structural stories in Asia excluding Japan, but there are questions as to whether if these were still so given less-effective containment of COVID-19 and less readily available technology solutions to deal with the economic impact from COVID-19, unlike North Asia counterparts,” Morgan Stanley economists Deyi Tan, Zac Su, Jin Choi and Jonathan Cheung said.