Debt watcher S&P Global Ratings now expects the Philippine economy to grow by just 4.2 percent this year, slower than the actual expansion of 5.9 percent in 2019, taking into consideration the assumptions of economists that the coronavirus disease 2019 will peak in August.
The new growth assumption was contained in a report S&P released on March 23, which estimated the cost of coronavirus at $620 billion.
It said despite the downward GDP revision, the estimate for the Philippines wa sstill stronger than 2.9 percent for China, 4.1 percent for Indonesia, 2.7 percent for Malaysia, 1 percent for New Zealand, 1.6 percent for Taiwan and 0.5 percent for Thailand.
Other Asia-Pacific countries are seen to post negative growth, including Hong Kong with -1.7 percent; Japan, -1.2 percent; Singapore, -0.8 percent; and South Korea, -0.6 percent.
S&P estimates that by 2021, the Philippines would grow strongly at 7.5 percent, next only to China’s 8.4 percent and Vietnam’s 8 percent. The economy is seen to grow by 6.7 percent in 2022 and 6.6 percent in 2023.
“S&P Global Ratings has updated its estimates of the total and permanent income loss for Asia-Pacific from COVID-19: approximately $620 billion. This loss will be distributed across sovereign, bank, corporate and household balance sheets,” it said.
“We have revised our real GDP, inflation, policy rate, and unemployment rate forecasts. We now expect China’s GDP growth rate to slow to 2.9 percent in 2020. Economies will contract in Hong Kong, Singapore, South Korea, and a newly deflationary Japan. The region’s average growth rate will be 2.7 percent,” S&P said.
S&P said there was a high degree of uncertainty about the rate of spread and peak of the coronavirus outbreak, with some governments estimating that the pandemic would peak in June or August. S&P said it was “using this assumption in assessing the economic and credit implications.”
“We believe measures to contain COVID-19 have pushed the global economy into recession and could cause a surge of defaults among nonfinancial corporate borrowers… As the situation evolves, we will update our assumptions and estimates accordingly,” it said.
S&P also said inflation in the Philippines would remain benign, settling at 1.6 percent this year, 2.9 percent in 2021 and 3 percent in the succeeding two years.
It expects unemployment rate in the Philippines to hit 6 percent this year, higher than 5.1 percent last year, before slowing again to 5.2 percent in 2021, 5.1 percent in 2022 and 5 percent in 2023.
Earlier, S&P said the Philippines is among countries in the Asia-Pacific region that would experience capital flight as economic recession is “guaranteed” in this part of the world due to the spread of COVID-19.
Shaun Roache, the chief Asia-Pacific economist at S&P Global Ratings, said in a report that if lingering uncertainty resulted in a strong preference for US dollars, policymakers in Asia’s emerging markets might be forced into a damaging round of pro-cyclical policy tightening.
“The countries most vulnerable to capital outflows remain India, Indonesia, and the Philippines,” Roache said.
The National Economic and Development Authority two weeks ago said it was looking at a slower growth of 5.5 percent to 6.5 percent for 2020.
Moody’s Investors Service also cut its growth forecast for the Philippines this year to 5.4 percent from its previous estimate of 6.1 percent. Despite the reduction, Moody’s said the Philippines would continue to be one of the strongest economies in Asia.