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ANZ expects Philippine economy to contract by 2.5% this year
MANILA, Philippines — ANZ Research expects the Philippine economy to contract by 2.5 percent this year as the economy further deteriorated in the second quarter due to the impact of the global coronavirus disease 2019 or COVID-19 pandemic.
In a report, ANZ said it expects an all-around deterioration for the Philippines, reflecting the sizeable headwinds to growth.
“At this stage however, a recession seems inevitable and we expect a contraction of -2.5 percent year-on-year,” ANZ said.
The country’s GDP contracted by 0.2 percent in the first quarter, ending 84 straight quarters of positive growth or since the three percent contraction recorded in the fourth quarter of 1998 or during the height of the Asian financial crisis.
Economic managers, through the Development Budget Coordination Committee (DBCC), are expecting the GDP to contract between two and 3.4 percent, ending more than two decades of positive growth. The country’s GDP last contracted on a full year basis in 1998 at 0.5 percent.
“GDP growth slumped to the lowest in the first quarter since the Asian financial crisis, with both the domestic and external sectors taking a sizeable hit. Even so, growth is certain to have deteriorated further in the second quarter, with the main island of Luzon (which accounts for 74 percent of GDP) under lockdown for most of the quarter,” ANZ said.
It said household consumption has likely collapsed, with contractions in both discretionary and non-discretionary consumption as passenger vehicle sales plunged by 72 percent in March, while the unemployment rate skyrocketed to a record 17.7 percent in April.
Furthermore, industrial production plummeted by 60 percent, while remittances from overseas Filipino workers remained vulnerable, booking a 1.4 percent growth in the first quarter.
“The current high unemployment rate, if sustained, could have dire consequences for household spending even as it reels from lower remittances,” ANZ said.
The research arm of Australia and New Zealand Banking Group expects inflation to ease to two percent this year before accelerating to 2.2 percent next year from 2.5 percent last year, giving the Bangko Sentral ng Pilipinas (BSP) more room to further ease interest rates.
Inflation eased for the fourth straight month to a six-month low of 2.1 percent in May, bringing the average to 2.5 percent in the first five months, primarily due to the collapse in oil prices, as well as the lockdown imposed in Luzon.
The BSP slashed interest rates by 125 basis points and reduced the reserve requirement ratio by 200 basis points to soften the blow of the pandemic.
“We expect the central bank to cut its policy rate by another 25 basis points in August before pausing to ascertain the impact of stimulus so far,” ANZ said.
The BSP is widely anticipated to keep interest rates on hold during the rate setting meeting of the Monetary Board on June 24 after a deeper 50 basis points cut during its first ever off-cycle meeting last April 16 that brought the benchmark rate to an all-time low of 2.75 percent.
Source: https://www.philstar.com/business/2020/06/23/2022758/anz-expects-philippine-economy-contract-25-year