Japan-based investment bank Nomura on Monday cut anew its 2020 Philippine gross domestic product (GDP) growth forecast as lower remittances and the surge in the unemployment rate will likely continue to exact its toll on the economy.
In a report, Nomura said the Philippine economy is projected to contract by as much 6.6 percent this year, worse than its -4.8 percent earlier projection.
“We revise down further our 2020 GDP growth forecast to -6.6 percent from -4.8 following the plunge in Q2 (second quarter) GDP growth to -16.5 percent,” said Nomura economist Euben Paracuelles.
Paracuelles said the double-digit contraction in the second quarter was due to the collapse in domestic demand, particularly consumption as a result of the lockdown imposed to prevent the spread of the coronavirus disease 2019 (Covid-19).
“Goods-producing sectors were surprisingly hit more badly than overall services, suggesting the impact of Covid-19 is extending beyond the most vulnerable segments,” he said.
Paracuelles said the surge in unemployment that hit 17.7 percent in April and falling remittances will continue to likely weigh heavily on consumption.
Household final consumption expenditure contracted by 15.5 percent in the second quarter while remittances declined by 19.2 percent in May.
“With still rising Covid-19 cases, the outbreak is still posing a threat to the recovery. We estimate around 48 percent of GDP, including main economic centers like Manila, are again facing more stringent lockdown measures,” he said.
In a separate statement, Bangko Sentral Governor Benjamin Diokno, however, said that despite the steep contraction in the second quarter, the Philippine economy is not “structurally weak.”
“It is inappropriate to compare the Q2 performance of the economy with other crises in recent Philippine history: the 1984-85 pre-EDSA I crisis, the 1997-98 Asian Financial crisis; and the 2007-2008 Global Financial crisis. I remember vividly that in previous crises, the peso depreciated, interest rates rose, public debt-to-GDP ratio expanded, gross international reserves thinned and the banking industry wobbled,” he said.
“In the most recent economic episode, the economy plunged because of the strict, nationwide lockdown to save lives and to allow the build up of health facilities and testing capacity due to the pandemic. It is not because the economy was weak,” he added.
Diokno said the contraction is temporary.
“The setback is temporary. Recovery can come quickly once consumer confidence returns, factories fired up, construction activity, particularly the BBB [Build, Build, Build] Program, is ramped up, and transportation is fully restored,” said Diokno.