Moody's: PH economy to shrink by 2% this year due to 'near-term' COVID-19 woes

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(FILE PHOTO)

Metro Manila (CNN Philippines, May 12) – The Philippine economy will contract by 2 percent this year battered by the COVID-19 pandemic, credit rating agency Moody's Investors Service says, but is seen to fare better compared to other countries.

The global debt watcher has not downgraded its credit rating for the Philippines, but said a mix of "near-term challenges" will disrupt the country's strong performance and solid fiscal position.

"Moody's expects the Philippines' real GDP growth to remain robust relative to peers and that its fiscal metrics will continue to strengthen as the government continues to make progress on its socioeconomic reform agenda, particularly on tax reform," the credit rater said in its latest credit opinion.

"However, the global coronavirus outbreak threatens the Philippines through a number of channels, including trade, supply chain linkages, investment, remittances and tourism, while stringent containment measures will also sharply curtail domestic demand," it added.

The health crisis has crippled the economy in the January-March quarter, shrinking it by 0.2 percent to interrupt a 21-year growth streak. The President's economic team has conceded that growth may be out of reach this year, while market analysts point out that the contraction will only grow more severe in the second quarter.

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The entire Luzon has been placed under lockdown for more than a month to contain the spread of the coronavirus. Metro Manila, the country's main business hub, remains under strict stay-at-home rules for more than two months, which will be reassessed before May 31.

The global recession would add to these concerns, Moody's said, including consumer spending. "We also expect remittances to soften substantially, reflecting not only job losses and falling income among overseas Filipinos, but also severely restricted deployment of new workers abroad," the report added.

Moody's said lower tax collections as businesses were shut down and additional spending on COVID-19 relief measures would widen the country's fiscal gap and put the country in deeper debt, although still manageable for global standards.

The Philippines holds a "Baa2" rating with a stable outlook from Moody's, which is still two notches away from the coveted "A" rating. The debt watcher said they will consider an upgrade if it sees a "marked convergence" between the growth of per capita incomes and additional state revenues, which may be realized through reform measures.

By 2021, growth could surge to 6.4 percent which would be the best showing in four years, Moody's said.

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Bangko Sentral ng Pilipinas Governor Benjamin Diokno took Moody's remarks as a "vote of confidence" on the country's economic performance, noting that the downtrend here is less severe compared to its global peers.

"Barring a second wave of infections, I expect the Philippine economy to have a strong rebound, estimated at 7.8 percent, in 2021," Diokno told reporters in a group message.

Finance Secretary Carlos Dominguez III said separately that the resumption of construction plans under the "Build, Build, Build" program would be the best growth driver, which should be started once restrictions are lifted.

Other strategies to stimulate economic activity include the scaling up of food production and distribution, the mass hiring of displaced workers as contact tracers, and the urgent passage of the bill revamping corporate income taxes and fiscal perks.