PANDEMIC COULD WIPE OUT PHL’S ECONOMIC GAINS, MOODY’S WARNS

MOODY’S Investors Service warned the Philippines of potential “acute cyclical challenges” to its previously touted economic strength due to the coronavirus disruptions, all while lowering its growth estimate for the country further for 2020. The credit watcher said it now sees a 7-percent contraction for the Philippine economy in 2020, further dampening hopes of recovery for the year. Moody’s previous forecast was a decline of just 4.5 percent for this year. “This scenario is balanced against the risk that the economy’s potential is hit more significantly than we currently estimate and/or that fiscal and economic reform momentum does not resume, leaving the Philippines’s economic and fiscal strength somewhat weaker. In particular, the near- to medium-term economic outlook remains uncertain given the persistence of coronavirus infections both domestically and globally, especially among the Philippines’s largest trading partners and key destinations and sectors for overseas labor,” economists at Moody’s said. “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. Lower remittances from overseas Filipinos could also weigh on incomes and consumption to a greater extent than we currently estimate,” it added. The projected 7-percent contraction is a sharp contrast to the strong 6-percent growth seen in 2019 and the 6.6-percent average growth in the preceding five years. Moody’s raised concerns that the pandemic may wipe off the gains seen in the past six years. “The Philippines’s credit profile has been characterized in recent years by strong economic performance, a strengthening fiscal position and limited vulner

ability to external shocks, although the global coronavirus outbreak will disrupt or potentially reverse these trends. Structural credit challenges include low per capita income and some constraints to the quality of institutions, which stands in contrast to strong policy effectiveness,” the credit watcher said. In the first half of the year, the Philippines entered its first bout of recession after 29 years of successive economic growth. The contraction, which was especially sharp in the second quarter, was attributed largely to the severe impact of the community quarantine on domestic demand. Household consumption fell 15.5 percent during the quarter, while import demand fell 40 percent. Exports of goods and services also fell 37 percent. The Philippines also reimposed tighter movement control measures in the first two weeks of August after the number of infections rose due to relaxed rules. Moody’s also noted that the sharp deterioration in labor market conditions and faltering remittance inflows has already weighed on consumer sentiment and spending. Nonseasonally adjusted unemployment rate rose to a record high of 17.7 percent in the second quarter 2020, while remittances from overseas Filipinos fell 9.9 percent during the same period. “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 of 2020, we have lowered our full-year real GDP growth forecast to a contraction of 7 percent, down from our earlier expectation of a 4.5-percent drop,” Moody’s said.