Debt watcher Moody’s Investors Service on Tuesday said the pandemic-inflicted “deep” economic scarring in the Philippines—one of the worst in Asia-Pacific—would exacerbate social inequality due to job losses and households reverting to poverty.
Based on Moody’s estimates, output losses relative to its prepandemic forecasts for the Philippines would be more than 15 percent by 2023—the third biggest loss in the region after those projected for tourism-dependent Macau and the Maldives.
In a report, Moody’s defined economic scarring as “the impact of a shock that can manifest as a lower level of short-term output compared to pre-shock expectations.”
“The medium-term potential growth rate can also fall as a result of the shock, compounding the loss in actual output,” it added.
It did not help that a number of economies, including the Philippines, Bangladesh and Cambodia, were also struggling with elevated numbers of virus cases, heightening uncertainties around the reopening of their economies, Moody’s said.
Christian de Guzman, Moody’s senior vice president and lead sovereign analyst for the Philippines, told a separate press conference on Tuesday that the country’s annual economic growth could slow to 6 percent in the medium term compared to the faster pace of expansion during the previous, prepandemic decade.
De Guzman said the Philippines belonged to economies, which Moody’s had categorized to have “deep scarring” or output losses of 8 percent or larger than its prepandemic forecasts.
“Deep scarring will likely lead to higher social risks for a number of economies, especially lower-income countries, where the pandemic has exacerbated pre-existing trends in inequality given the disproportionate impact on employment,” Moody’s said in the report.
De Guzman said the Philippines’ deep scarring was caused by last year’s worst post-war recession when gross domestic product (GDP) slid by a record 9.6 percent, reversing the strong growth rates posted before the COVID-19 pandemic.
The social risks in the Philippines as a result of this deep scarring included the reversal of prepandemic gains to reduce poverty and unemployment, he said.
De Guzman said one of the obvious manifestations of economic scarring in an emerging country like the Philippines was its inability to immediately adjust to the “new normal” of remote working, for instance.
Citing that this was rooted in the structure of the economy, he noted that working-from-home could not be easily done in the Philippines given the sizable informal labor sector, which required in-person interactions between workers and their employers.
These difficulties will exacerbate inequality, especially among lower-income classes, he added.
De Guzman warned that the risks to economic scarring will continue to be elevated amid a prolonged pandemic, and with the more contagious Delta variant posing a greater threat not only to the Philippines, but globally.