Philippine economy to shrink by 4%
The Philippine economy is now forecast to contract by 4% this year, according to Fitch Ratings, as the fallout from the coronavirus pandemic widens.
“We have recently lowered our GDP (gross domestic product) growth outlook to -4% to reflect the short-term impact of lockdown restrictions on economic activity, as well as the ongoing weak external environment,” Stephen Schwartz, head of Asia Pacific Sovereign Ratings at Fitch Ratings.
To recall, Fitch Ratings gave a -1% forecast for the Philippine economy in May, and a 6% baseline forecast before the pandemic.
The government projects the economy will contract by 2% to 3.2% this year. S&P Global Ratings and Moody’s Investors Service see the economy shrinking by 0.2% and 2.5%, respectively.
“A cautious lifting of restrictions could lead to a resumption of activity, but the outlook is highly uncertain depending on the evolution of the virus, both globally and within the Philippines,” Mr. Schwartz said.
The lockdown in Metro Manila and key cities began easing on June 1, allowing public transportation to partially resume and most businesses to reopen. Most parts of the country are also now under a more relaxed quarantine.
As the lockdown covered April and May, Mr. Schwartz said the second quarter will be “significantly worse” than the first quarter, as the full-quarter impact of the restrictions will be seen.
The country’s economic output shrank by 0.2% in the January to March period, its first contraction since 1998.
However, Mr. Schwartz noted the third and fourth quarters will likely see positive growth, setting the stage for a gradual recovery next year. For 2021, Fitch Ratings sees growth at 7.4%, faster than the 7% penciled in last May and the 6.5% baseline forecast.
He pointed out that the country had ample fiscal space pre-pandemic, which will allow it to weather the crisis.
“We understand that the authorities aim to preserve their infrastructure spending program, while returning the debt-to-GDP ratio to a downward path over the medium term after the crisis subsides,” Mr. Schwartz said.
The country’s end-2019 debt-to-GDP ratio was at 41.5%, slightly lower than the 41.8% seen in 2018 and better than the government target of 41.7%.
“Their recent tax reforms and medium-term efforts to boost the Philippines’ tax revenue ratio will be important in this regard for meeting these objectives,” Mr. Schwartz said.
The Senate was unable to pass the second tax reform package under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) bill before adjourning last week.
However, senators committed to passing the measure by August.
One of the main features of CREATE is the immediate lowering of corporate income tax to 25% from 30%.
Finance officials earlier hoped the lower corporate income tax would take effect by July, as part of efforts to stimulate the economy amid the pandemic.