Philippines Is Bracing for Deepest Slump in Three Decades
(Bloomberg) -- The Philippine economy could face its deepest contraction in more than three decades, with the government now projecting it to shrink by 2% to 3.4% this year in the wake of the pandemic.
The coronavirus outbreak will cost the economy 2 trillion pesos ($40 billion) this year or nearly a tenth of gross domestic product, the Development Budget Coordination Committee said in a statement on Wednesday. Massive spending will bloat the budget deficit to as much as 8.1% of GDP so the economy could return to growth of a 7.1% to 8.1% next year, it said.
The Philippines, one of the region’s fastest-growing economies, was the first country in Southeast Asia to shut down large swathes of its economy since mid-March. The restrictions dragged GDP in the first three months to a 0.2% contraction, with the government expecting a deeper slump this quarter.
President Rodrigo Duterte will gradually reopen the economy as the nation can’t afford to be in quarantine for a long period, allowing some businesses to restart after May 15 even in the capital region that has the most infections. The government is banking on a $160-billion infrastructure plan to provide a lift to the economy once lockdown measures are lifted.
The latest GDP forecast is worse than the 1% estimate made by Finance Secretary Carlos Dominguez weeks ago. A 2% contraction will be the deepest since a 6.9% drop in 1985, according to Economic Planning Undersecretary Rosemarie Edillon. The economy will slump by 2.4% in 2020, before growing by 7% in 2021, according to a Bloomberg survey from May 7 to 12.
“While that’s a significant revision, I think the forecast range may still be subject to downside risks given the need to be very cautious in re-opening the economy,” said Euben Paraculles, an economist at Nomura Holdings Inc. in Singapore. “Large-scale fiscal easing is also urgently needed but unfortunately the timing of passing a sizable support package is still unclear. That puts the onus on monetary policy in the near-term.”
The Philippines’ main stock index declined as much as 0.8% after the data was released, overturning the 0.08% gain at market open. The peso was little changed.
- This year’s revenue projection was slashed 18% to 2.6 trillion pesos, while the outlook on expenditures was raised to 4.2 trillion pesos.
- While the 2020 budget deficit will be larger than the 5.3% of GDP initially projected in March, the Philippines remains in the median of comparable countries in the region “as long as the ratio does not exceed 9%.”
- Exchange rate used for these forecast was 50 to 54 per dollar.
©2020 Bloomberg L.P.