Nomura sees 1.6% GDP growth

JAPAN’S global investment bank Nomura further cut its growth forecast for the Philippine economy this year because of the global impact of the coronavirus disease 2019 (Covid-19) to global and domestic consumption.

“We cut our 2020 GDP (gross domestic product) growth forecast more sharply to 1.6 percent from 5.6 percent, which is a steep slowdown from 2019’s 5.9 percent and is the lowest since the 2009 global financial crisis,” Nomura said in a report released on Monday.

If correct, the revised outlook would settle below the 6.5- to 7.5- percent 2020 growth target of the government, and will be the slowest since the 1.1-percent expansion posted in 2009.

The investment bank explained that its adjusted projection reflects a base case scenario where the sharp declines in global growth, particularly the Philippines’ largest trading partners like China and, importantly, the United States and Europe, depressing export growth sharply for both goods and services.

It added that the sharp fall in global growth will also hurt overseas worker remittances more significantly as worker deployment likely will be at a standstill, and worse, job losses, especially among contract workers and seafarers, will increase sharply.

“This is likely to put significant downward pressure on household consumption, which accounts for 68 percent of GDP,” Nomura also said.

Furthermore, it also highlighted that the placing of the entire Luzon under a month- long enhanced community lockdown will prove highly disruptive to overall economic activity, because Manila is the economic center and Luzon accounts for nearly 70 percent of

Philippine GDP.

“We assume in this scenario that the lockdown is lifted in mid-April as scheduled, but activity is unlikely to return to normal conditions quickly,” Nomura said.

Besides the hit to consumer spending due to social distancing measures and the public fear factor lingering, it added that businesses are also facing more supply chain disruptions with the flow of goods and personnel hampered by severe travel restrictions, and further out, more uncertainty in the operating environment.

The investment bank also mentioned that under its bad case scenario, the negative effects from external factors mentioned in the base case would be much more amplified.

Hence, it sees 2020 GDP expansion to fall into negative territory to -1.9 percent.

“Our assumption here, in addition to the external factors, is that social distancing measures locally are extended over Q2 (second quarter), with the lockdown lasting until May and expanded nationwide,” Nomura said.

It added that under this scenario, the disruption in economic activity will be much more widespread, and non-linear effects will kick in as a result of a combination of massive job losses, more insolvency problems, particularly for small and medium enterprises, asset quality concerns of banks, which in turn will lead to tighter lending standards, and some bouts of social unrest.

Under a good case scenario, the investment bank mentioned that 2020 GDP growth is forecasted at 3 percent, taking into account a trajectory of weakening growth through second quarter due to a sharp decline in external demand, which is compounded by the domestic disruption from the lockdown, which it assumes gets lifted as scheduled.

“However, a shallow recovery ensues in H2 (second half) as in this scenario the non-linear effects in the bad case are avoided, and normal conditions return more quickly partly because policy responses gain some traction and containment efforts become relatively successful,” it said.