Fitch Solutions slashes growth forecast for PH to 6%
Philippine economic growth may hit up to only 6 percent this year as the coronavirus (COVID-19) contagion may curb exports, tourism, remittance flows and infrastructure projects, think tank Fitch Solutions said.
In a research note issued on Tuesday, Fitch Solutions trimmed its gross domestic product (GDP) growth forecast for the country from 6.3 percent previously.
The revised outlook represents a slight increase from last year, when growth hit an eight-year low of 5.9 percent due to the delayed legislation of the national budget, the US-China trade war, sluggish foreign direct investments and the pass-through effects of local monetary tightening in 2018 when local inflation rates spiked.
“Real GDP growth in the Philippines is set to rebound more modestly in 2020 than we had initially anticipated, owing to the impact of the COVID-19 outbreak,” Fitch Solutions said.
The research said the exports sector and tourism were likely to see intense headwinds from the outbreak, while infrastructure projects could face delays. Furthermore, it noted that households were likely to receive weaker remittance inflows.
Fitch Solutions noted the Philippine government had committed to ramp up fiscal spending by 12 percent this year, alongside a roll-over of unused funds from the 2019 budget, ensuring a significant boost from fiscal stimulus.
“Indeed, we expect fiscal stimulus to be a key driver of growth, with government consumption set to contribute a forecast 2 percentage points to headline growth,” the think tank said.
The major risk to this view, however, is a sudden surge in the number of domestic cases in the Philippines or a more prolonged impact on external demand, the research said.
In a separate research note, ING Philippines economist Nicholas Mapa said that with the government estimating a growth hit of up to a full percentage point should COVID-19 persist, it was time for the government to flex both its fiscal and monetary muscle to shield the economy from the impending slowdown.
“COVID-19 is the game changer, a single cell organism that threatens to unhinge the global economic recovery by forcing both the developed nations and the emerging markets to call in sick. And as central banks around the world rally to show support for their respective economies, the Philippines is blessed with the ability to rollout a double-headed twin stimulus package with the fiscal front boasting a parallel 2019-2020 budget while monetary policy showcases a double-barrelled tag team of policy rate cuts and adjustments to reserve requirement ratio,” Mapa said.
On the fiscal front, ING expects the government to rollout the full extent of its double-headed budget to continue its “Build, Build, Build” directive and to push for projects to stimulate the domestic economy as the country may need to rely less on tourism and remittances this year.
Meanwhile, ING also sees the Bangko Sentral ng Pilipinas carrying on with its planned 50-basis points point policy interest rate cut in 2020 while also injecting fresh liquidity through reserve requirement ratio cuts when the financial system shows the ability to absorb the fresh funds into the real economy.
