PH economy seen to shrink 9.2% in 2020

Credit to Author: Mayvelin U. Caraballo, TMT| Date: Thu, 19 Nov 2020 16:25:21 +0000

The Philippine economy is likely to contract by 9.2 percent this year before rebounding in 2021, according to an asset management company.

“We continue to maintain our forecast [of around] -9 percent for this year. Just to give you a sense of what that means, the Philippine economy in 2019 was [worth] P19.3 trillion and we’re [going to] lose around P1.8 trillion [this year],” Phillip Hagedorn, chief investment officer of the Atram Group, said during a forum hosted by Maybank Philippines Inc. on Wednesday.

He also said household consumption and capital formation/investments could ease by 9.4 percent and 34.3 percent this year, respectively, as “companies are just not investing” since they were “saving cash [and] assessing what they need to do.”

“[U]ntil they get that confidence back, we probably won’t see big spending,” he added.
The Atram Group official said that while state spending could expand by 21.5 percent this year, it was not enough to lift overall domestic output.

“Government spending is what’s keeping us afloat. Unfortunately, a lot of this government spending is not fiscal, [but] health care-related so there’s very little multiplier effect,” he explained.

Latest data showed that government spending in the first nine months of the year, which includes those for infrastructure and capital outlay, maintenance, personnel services and subsidies, surged to P3.02 trillion. The figure is 15.1 percent or P395.8 billion wider than the year-ago amount.

The Atram Group’s latest outlook was worse than the government’s revised assumption of a 5.5-percent gross domestic product (GDP) fall for 2020.

It is also worse than Fitch Solutions and ANZ Research’s -9.1 percent, the International Monetary Fund’s -8.3 percent, the Asian Development Bank’s -7.3 percent, Moody’s Investors Service’s -7 percent, the World Bank’s -6.9 percent, Sun Life Philippines’ -6.5 percent, MUFG Bank Ltd.’s -6.3 percent, and HSBC Private Bank’s -3.9 percent.

It is, however, better than ING Bank Manila’s -10.8 percent, Fitch Ratings’ -9.6 percent, S&P Global Ratings’ -9.5 percent, Capital Economics’ -9.5 percent, Rizal Commercial Banking Corp.’s -9.5 percent to -10 percent, and the Bank of the Philippine Islands’ -9.3 percent.

The Philippines remained in recession after domestic output slid by 11.5 in the third quarter, 16.9 percent in the second and 0.7 percent in the first. This brought the contraction in GDP to 10 percent in the first nine months.

For next year, Hagedorn said the economy was poised to recover by 10.9 percent on account of higher government spending.

“We are expecting that by the first quarter [of] 2021, we will be minus-to-single digit and by the second quarter, [we would be] back to growth for GDP,” he added.

The Atram Group executive forecasts household consumption to grow by 8.2 percent, capital formation/investments to bounce back by 32.5 percent, and government spending to climb by 16 percent next year

If correct, his 2021 projection would fall above the 6.5- to 7.5-percent growth assumption of the government for next year.

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