Nomura downgrades PH growth forecast to 1.6%

Philippine economic growth may soften to 1.6 percent this year, the slowest since the 2009 global financial crisis, as the new coronavirus disease (COVID-19) pandemic takes a heavy toll on the global community.

This is according to Japanese investment house Nomura, which sharply downgraded its gross domestic product (GDP) growth outlook for the country from its earlier estimate of 5.6 percent.

This followed Nomura’s downgrading of its global GDP forecast to a contraction of 4 percent from 2.3 percent due to massive fallout from the COVID-19 pandemic.

But unlike in 2009, Nomura said the quarterly trajectory in its forecast for the Philippines this 2020 implied that the domestic economy would go into technical recession, or a contraction in economic activity for two consecutive quarters, by the 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,” Nomura said in a March 27 research paper that assessed COVID-19’s impact on the global economy.

The pandemic is also seen to hurt overseas worker remittances more significantly than previously thought, Nomura said. Worker deployment will likely be at a standstill, and worse, job losses especially among contract workers and seafarers, particularly those in cruise ships, will increase sharply, it added. This is seen to put significant downward pressure on household consumption, which accounts for 68 percent of GDP.

Nomura added that the Luzon-wide lockdown would prove “highly disruptive” to overall economic activity because Metro Manila is the country’s economic center and Luzon accounts for nearly 70 percent of GDP.

“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. Apart from the hit to consumer spending due to social-distancing measures and the public fear factor lingering, businesses are also facing more supply chain disruptions with the flow of goods and personnel hampered by severe travel restrictions, and further out, more uncertainty in the operating environment,” Nomura said.

In terms of economic policy responses, Nomura expected the government to pass a relatively sizeable supplementary budget in April, targeting the worst hit sectors. It revised its 2020 fiscal deficit forecast for the Philippines to 4.5 percent of GDP from 3.7 percent, exceeding the 4 percent reached in 2009.

The Bangko Sentral ng Pilipinas is also seen to remain active in providing support measures. Nomura sees an additional 75 basis points in policy rate cuts this year, taking the policy rate to a new record low of 2.5 percent. It also expects another 200-basis point cut in the reserve requirement ratio to reach 10 percent.

“All these are likely to be delivered in the second quarter given the rapidly deteriorating growth outlook,” Nomura said.

The best-case scenario for the Philippines is that GDP would grow by 3 percent this year, assuming that aggressive policy responses gain some traction and containment efforts become relatively successful.

Under the worst-case scenario, Nomura said the negative effects from external factors would be much more amplified, resulting in a GDP decline of 1.9 percent.

Nomura’s worst-case assumption is that in addition to the external factors, social-distancing measures locally will be extended over the second quarter, with the lockdown lasting until May and expanded nationwide. INQ