Debt watcher S&P Global Ratings on Wednesday reduced its 2020 growth forecast for the Philippines to 6.1 percent from the previous estimate of 6.2 percent amid the threat of the 2019 novel coronavirus disease that is expected to affect Asia-Pacific economies.
S&P, however, said the Philippines would continue to outperform most of its peers in the region.
The 6.1-percent gross domestic product growth forecast for the Philippines this year is higher than 5 percent for China, 4.9 percent for Indonesia, 4.3 percent for Malaysia, 1.2 percent for Singapore and 2.2 percent for Thailand.
Only Vietnam (6.2 percent) and India (6.4 percent) are seen to grow faster than the Philippines this year.
S&P said that in 2021, the Philippines would likely grow stronger at 6.4 percent, next only to Vietnam’s 6.6 percent.
The report said Hong Kong and Singapore would be affected the most by the CoVID-19 outbreak while Australia, Korea, Taiwan, Thailand and Vietnam would be heavily affected. S&P said Japan, Indonesia, Malaysia and the Philippines would be less affected.
S&P said that in case of the Philippines, “people flows are less important than for many neighbors. Tourism-related exports are only 3 percent of GDP, and less than a fifth of visitors are from China. More uncertain is the impact on supply chains.”
“The Philippines is both upstream and downstream from China with processed intermediate trade with the country accounting for about 15 percent of overall trade,” S&P said.
“This is dominated by electronics components which may experience region-wide disruptions. The OECD estimates that the Philippines 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,” it said.
S&P said that on the investment side, inward foreign direct investments in the country was only 3 percent of GDP, while the Chinese share of approved FDIs was typically less than 3 percent.
S&P said the disruption in China would flow to Asia-Pacific through four channels including people flows, supply chains, goods trade and commodity prices.
“Our baseline is a temporary shock. Prolonged disruption into the second quarter would tip the region into recession, stress corporate cash flow and have substantial credit implications,” it said.
S&P anticipates the region’s GDP to expand by 4.3 percent in 2020, or 0.5 percentage point lower than its pre-outbreak forecast.
“At this point, we anticipate a recovery will take a firm hold in the third quarter but risks are tilted to the downside. We expect more policy easing in the most affected economies, especially rate cuts,” it said.
Moody’s Investors Service also said the Philippine economy would be impacted negatively by the outbreak that already claimed the lives of 1,700 individuals in mainland China.
Moody’s said economies that rely on travel and tourism―like the Philippines―would be badly hit by the dreaded disease.
“As travel demand softens due to disruptions from the outbreak, growth in economies that are highly reliant on foreign visitors―those from China in particular―will weaken,” Moody’s said.
“Such economies include Thailand and the Philippines, where the direct contribution of travel and tourism industries is more significant as a share of GDP. Employment conditions will also weaken because these industries are large employers in APAC [Asia-Pacific] countries,” Moody’s said.