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Economy seen contracting by 1.6%

Joshua Lao

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Local output growth, measured as the gross domestic product (GDP), was seen growing at a significantly slower rate than last year owing to the ravages wrought on the economy by the COVID-19 pandemic.

Analysts at Nomura Research recalculated the growth outlook of the Philippines this year and made appropriate downward revisions.

“We cut our 2020 GDP growth forecast more sharply to 1.6 percent from 5.6 percent, which is a steep slowdown from 2019’s 5.9 percent and the lowest since the 2009 global financial crisis,” Nomura analysts said.

“But unlike in 2009, the quarterly trajectory in our forecast implies the economy goes into technical recession by second quarter. This reflects the sharp declines in global growth, particularly the Philippines’ largest trading partners like China and importantly, the US and Europe, depressing export growth sharply for both goods and services (i.e. tourism),” it added.

According to Nomura, the country’s remittances will definitely take a hit from the pandemic, placing a downward pressure on household consumption, which comprise 68 percent of GDP.

“In addition, we believe President Duterte’s decision to place Manila and the entire island of Luzon under a lockdown, enforcing stricter and enhanced community quarantine, will prove highly disruptive to overall economic activity, because Manila is the economic center and Luzon accounts for nearly 70 percent of GDP,” it explained.

“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,” it added.

Good and bad case scenario

Should the economy recover early with the resumption of domestic consumption and the return to normalcy of other market conditions, Nomura projects a 3 percent GDP expansion this year.

But should the debilitating impact of the pandemic be amplified further, a drastic dip of minus 1.9 percent may be expected this year, marking a contraction instead of growth.

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

“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 SME (small and medium enterprises), asset quality concerns of banks, which in turn will lead to tighter lending standards, and some bouts of social unrest,” it added.

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