Security Bank’s Trust Asset Management Group sees strong potential for the economy to bounce back from the negative effects of COVID-19 after the Philippines posted a 16.5 percent gross domestic product (GDP) contraction in the second quarter, the worst figure in Philippine history since the Asian Financial crisis in 1997.
“During the 1997 Asian Financial Crisis and the 2008 Global Financial Crisis, inflation played a large part into the crash that ultimately bled into consumption. However, for COVID-19, it was the decline in consumption and business closures, because of lockdowns that bled into the financial system which in return led us to negative GDP growth territory,” Noel Reyes, chief investment officer of Security Bank’s Trust and Asset Management Group, said.
Despite this, the Trust Group’s fund managers remain very optimistic that the country’s GDP will still settle at 3.5 percent year-on-year growth by 2021 due to base effects and the GDP returning to pre-COVID figures at six percent by 2023.
“The good liquidity brought by the forceful response of the Bangko Sentral ng Pilipinas and low interest rates put the country in a good position for consumption rebound,” Reyes said.
Cloud of uncertainty
Since the lockdown was imposed in mid-March, the economy has been hit with high investor uncertainty causing a significant drop in the Philippine Stock Exchange Index during the early parts of the quarantine. Despite this, the Peso has become Asia’s best performer with at least four percent growth against the US dollar.
In a webinar held recently for its Wealth Management and Trust clients, the group shared a 7.7 percent year-end GDP forecast for the economy. This can be attributed to the fact that most Filipinos will continue to stay at home, only spend on essentials and still refrain from purchasing non-essential items.
Echoing the group’s economic view, Security Bank’s President and CEO Sanjiv Vohra said that consumer confidence can be seen returning once a vaccine or cure that could end the pandemic is found.
“It’s a delicate balancing act for sure, and the key will be to strengthen our public health so that we make sure that our workforce and thereby our economy will remain productive, and business and consumer confidence returns. Locally, we have low-interest rates and good liquidity. We also have a forceful BSP response, resilient currency, and a strong potential for economic and consumption rebound,” Vohra said.