Moody’s Investors Service has revised its 2020 economic forecast for the Philippines from 4.5 percent to -7 percent contraction after noting that factors for a recovery in the second half of the year is less robust than earlier expected.
In its September 2, Moody’s said impact of lockdowns in Luzon from middle of March to end of April and until end of May for the National Capital Region (NCR) has affected labor market conditions, which along with the drop in remittances, have affected consumer sentiment and spending.
Non-seasonally adjusted unemployment rate, it added, has registered a 17.7-percent increase in the second quarter from 5.3 percent in the first quarter of the year. Inflows from overseas Filipino workers (OFWs) also dropped by 9.9% in the second quarter, the first negative print since 2015.
The report likewise noted the drop in the value and volume in manufacturing production following the implementation of strict quarantine measures. Tourism and related industries were also affected by the movement restrictions, it said.
“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 (gross domestic product) growth forecast to a contraction of 7.0 percent down from our earlier expectation of a 4.5 percent drop,” the report said.
Moody’s growth print projection for the country this year is weaker than economic managers’ GDP forecast of -5.5 percent for this year. It, however, forecasts a recovery for the Philippine economy next year of about 6.8 percent, within the economic managers’ 6.5-7.5 percent target band until 2022.
The report said Moody’s stable outlook on Philippines’ investment grade rating of Baa2 “reflects the view that the recovery from the acute shock posed by the coronavirus outbreak will restore rapid economic growth relative to peers, complemented by the stabilization and eventual reversal of the deterioration in fiscal and debt metrics.”
“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 economic and fiscal strength somewhat weaker,” it added.
Economic managers, however, said recovery is expected to start in the third quarter as lockdown measures have been eased.