Bangko Sentral ng Pilipinas Governor Benjamin Diokno said the country likely experienced the worst of the COVID-19 pandemic in the second quarter, with better gross domestic product data expected in the third quarter.
“I foresee a ‘hockey stick-like recovery, with the lowest point in the second quarter. But the third quarter will be better and the fourth quarter will be even stronger. We expect a strong rebound in 2021 and 2022,” Diokno said in a presentation during a mid-year economic briefing Wednesday.
“The worst is over. But while we’re not out of the woods yet, we have to look beyond this crisis. What else can we do to make the Philippines more robust and resilient? How do we prepare for the next crisis? Let me remind you again that we entered this crisis from a position of strength,” Diokno said.
“Do I become hopeful or fearful? What can I do to calm the market, live with the virus and prepare for a better tomorrow? I choose to be hopeful,” Diokno said.
The economy contracted by 0.2 percent in the first quarter, a reversal of the 5.7-percent growth a year ago and 6.4-percent expansion in the fourth quarter, pulled down by the impact of the Taal Volcano eruption in January and the succeeding devastation brought by the health crisis.
Economists believe the GDP contraction could be deeper in the second quarter as the lockdown imposed by the government to contain the spread of the disease almost encompassed the entire April-to-June period.
The interagency Development Budget Coordination Committee earlier predicted a 2-percent to 3.4-percent contraction this year, before the economy could recover by around 8 percent to 9 percent next year, assuming the pandemic would be over by then.
Diokno said what made him optimistic about the recovery of the domestic economy was the continued strong macroeconomic fundamentals such as robust growth (which averaged around 6 percent for the past few years), good fiscal performance and strong external and financial sector positions that provided relative stability in the face of the pandemic.
Inflation also remained benign, averaging 2.5 percent in the first half. Diokno expects inflation to settle within the target range of 2 percent to 4 percent from 2020 to 2021.
He also noted the stability of the banking system which is a source of the strength for the domestic economy and cited the continued appreciation of the peso versus the US dollar.
The peso appreciated by 2.81 percent against the greenback since the start of the year.
“One of the lessons we learned during the Asian financial crisis is the need to accumulate foreign reserves as self-insurance against a currency crisis. As of end-June 2020, the country’s gross international reserves stood at an all-time high of $93.3 billion. This is enough to cover 8.4 months’ worth of imports of goods and payments for services and primary income. It is also equivalent to 7.3 times the country’s short-term external debt based on original maturity,” he said.
International rating agencies said the Philippines would likely to come out of the pandemic with little economic damage. On July 16, Moody’s gave a vote of confidence on the Philippines by affirming its “Baa2” rating and maintaining its outlook as “stable.”
Japan Credit Rating Agency in June upgraded the credit rating to “A-“ from “BBB+.” Another Japanese credit rating agency, R&I, upgraded the Philippines’ credit rating to “BBB+” from “BBB” in February. Both ratings are assigned a stable outlook.
S&P and Fitch affirmed their ratings of BBB+ and BBB, respectively.
The Economist also acknowledged the Philippines’ relatively strong financial strength based on the four metrics of public debt, foreign debt, cost of borrowing and reserve cover.
It assessed the Philippines as the sixth best among 66 emerging economies and the first among its Southeast Asian peers.
“Nevertheless, the country’s sound fundamentals will lend support to our response to this pandemic and propel the economy into a strong recovery in 2021 and 2022,” Diokno said.