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S&P also lowers Philippines growth forecast to 6.1%
MANILA, Philippines — Credit watcher S&P Global Ratings has also slashed its projected gross domestic product (GDP) growth for the Philippines to 6.1 percent instead of 6.2 percent as the global outbreak of the novel coronavirus disease (COVID-19) takes its toll on economies.
In its latest report titled “COVID-19 will hit Asia-Pacific economies hard,” the debt watcher said it has likewise lowered the GDP growth forecast for Asia Pacific by 0.5 percentage point to 4.3 percent instead of 4.8 percent for 2020.
S&P said the Philippines, Japan, Indonesia and Malaysia are less affected by the virus outbreak that impact on people flows, supply chains, goods trade and commodity prices.
It said the Philippines is the least affected as its GDP growth forecast was lowered by only 0.1 percentage points followed by Malaysia and Indonesia with 0.2 percentage point and Japan with 0.3 percentage point.
The Philippines has posted 84 straight quarters of positive GDP growth after booking an expansion of 6.4 percent in the fourth quarter last year from six percent in the third quarter.
The country’s GDP growth slowed to an eight-year low of 5.9 percent last year from 6.2 percent in 2018, missing the government target of six to 6.5 percent, due to soft global markets caused by the US-China trade war, the tightening cycle by the Bangko Sentral ng Pilipinas (BSP) in 2018 regionwide as well as the delayed passage of the 2019 national budget.
For 2020, economic managers target a GDP growth of 6.5 to 7.5 percent. Based on initial estimates by the BSP, the COVID-19 outbreak could slash the country’s GDP growth by 0.3 percentage point this year.
S&P said tourism-related exports in the Philippines are only three percent of the country’s GDP, while less than a fifth of visitors are from China.
The credit rater added the Philippines is more vulnerable to supply chains than people flows.
“The Philippines is both upstream and downstream from China with processed intermediate trade with the country accounting for about 15 percent of overall trade. This is dominated by electronics components which may experience regionwide disruptions,” S&P added.
The Organization for Economic Cooperation and Development (OECD) estimates that Philippine domestic value-added in gross exports is over 75 percent, which is high by emerging market standards, although it is likely to be lower in the electronics industry.
On the investment side, S&P said inward foreign direct investments (FDI) only account for three percent of GDP, while the Chinese share of approved FDI accounts for less than three percent of total.
S&P said it expects significant growth drags of one percent or more in Singapore and Hong Kong after it lowered the GDP growth forecast of China by 0.7 percentage point to five percent this year.
Other countries heavily affected by the COVID-19 outbreak include Thailand with a 0.6-percentage point reduction in GDP growth forecast as well as Australia, South Korea, Taiwan, and Vietnam with 0.5 percentage point.
“China’s health emergency will disrupt economic activity throughout Asia-Pacific,” S&P said.
The debt watcher said policymakers in the region are in a quandary as higher-than-normal uncertainty makes it difficult to craft the right policy responses.
It added the BSP and Bank of Thailand moved early by cutting interest rates, but due to domestic factors instead of the virus outbreak.
The benign inflation and slower-than-expected GDP growth allowed the BSP’s Monetary Board to slash interest rates by another 25 basis points last Feb. 6, bringing the total rate cuts to 100 basis points since May last year and partially unwinding the tightening cycle that saw rates jump by 175 basis points in 2018.
“We expect more easing from the most heavily affected economies, mainly policy rate cuts and targeted liquidity support to affected sectors. Fiscal easing is also likely, but may be targeted at affected sectors such as tourism. Together with exchange rate depreciation this will help offset some of the hit, but the economic losses will remain material this year,” S&P said.
On Tuesday, Moody’s Investors Service lowered the country’s growth forecast to 6.1 percent instead of 6.2 percent but retained its projection for 2021 at 6.4 percent.
Source: https://www.philstar.com/business/2020/02/20/1994466/sp-also-lowers-philippines-growth-forecast-61