Bangko Sentral ng Pilipinas Governor Benjamin Diokno expects the economy to track a strong “U-shaped recovery” next year, with the expectation that the coronavirus disease 2019 pandemic will be contained by the second half this year.
“The domestic economy could slow down in the first quarter 2020 and is projected to contract in the second and third quarters before gradually recovering in the fourth quarter 2020,” Diokno said in a statement.
He said the GDP on an annual basis was expected to shrink 0.2 percent in 2020 before bouncing back to about 7.7 percent next year as the impact of the government policy support measures gained traction.
“The strong recovery is based on the assumption that the pandemic is contained in the second half of 2020,” he said.
He said the Philippine economy might not escape a recession this year, but unlike most emerging economies, the country was starting from a position of strength and, thus, would not risk a debt default as a result of the COVID-19 pandemic.
“The Philippines debt-to-GDP ratio was 40.5 percent in 2019. With the fiscal stimulus owing to the pandemic, and with the deficit-to-GDP ratio rising from 3.2 percent to 5.3 percent, the debt-to-GDP ratio might hit 47 percent, modest by international standards,” Diokno said.
Diokno said the Philippines was in a sound fiscal and monetary state when the pandemic hit the country. The budget deficit was modest and the revenue base was expanded with a series of new tax laws and improved revenue administration. The jobless rate was at its lowest ever, he said.
He said the peso remained stable and is currently the second strongest currency---next to Japanese yen—among the 14 monitored Asian foreign currencies after the COVID-19 pandemic.
“The strength of the peso might be attributed to the Philippines’ hefty gross international reserves and its strong economic fundamentals. The GIR is expected to hit more than $90 billion by end-2020,” Diokno said.
ING Bank Manila said the second-time extension by the government of the enhanced community quarantine in major areas in Luzon would result in economic contraction in the second quarter and eventually bring down the full-year growth to -2.2 percent, a sharp turnaround from the actual 6-percent expansion in 2019.
“The extension of the lockdown coupled with the loss of remittance support and a meager fiscal response all but scuttles any hope for growth in the second quarter. This development forces us to drop down our expectations for growth this year with full-year 2020 GDP hitting a worst-case scenario level of -2.2 percent,” ING Bank Manila senior economist Nicholas Antonio Mapa said in a message to Manila Standard.
“Economic data reported recently and in the coming weeks will show further symptoms of the impending economic malaise ahead. Brace for economic impact,” Mapa said.
Mapa said the bank was “awaiting an increase in fiscal spending to match the almost four-week extension to the original ECQ.”
Bangko Sentral ng Pilipinas Deputy Governor Francisco Dakila earlier said remittances would likely decline this year by 0.2 to 0.8 percentage points due to COVID-19.