Deeper than expected economic slump seen as gov't counts ₱2-T losses from COVID-19 crisis

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The Philippine economy will see a deeper slump than initially expected. (FILE PHOTO)

Metro Manila (CNN Philippines, May 13) – The COVID-19 pandemic will be more damaging to the Philippines than initially expected, with the government saying the economy will likely shrink by at least 2 percent as losses mount to about ₱2 trillion.

The inter-agency Development Budget Coordination Committee announced Wednesday that the economy will contract between 2 percent to 3.4 percent this 2020, worse than their original projection of a "zero growth" to a 1 percent decline. Prior to the health crisis, the government was looking to expand the economy by 6.5-7.5 percent.

​This will put an end to a sustained 21-year growth path since 1998, when the economy last shrunk as it reeled from the Asian Financial Crisis and a local bout of El Niño that damaged crops.

"National Economic and Development Authority estimates suggest that the potential impact of the pandemic on the economy could reach ₱2.0 trillion or about 9.4 percent of GDP (gross domestic product) this year," the economic managers said in a statement.

The coronavirus crippled economic activity from January-March to register a 0.2 percent contraction. Authorities and private economists all say a steeper downturn is expected in the second quarter as the economy remained paralyzed due to lockdown rules meant to contain the disease. Strict stay-at-home rules have been extended to May 31 in Metro Manila, the country's main financial hub with about 13 million people.

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

The country's fiscal position will also worsen this year, with authorities projecting a ₱1.56 trillion budget gap. The projected deficit is at 8.1 percent of GDP — higher than the earlier 5.3 percent estimate and the original 3.2 percent ceiling worth ₱671.2 billion. That is due to a sudden surge in spending to cater to various COVID-19 relief measures and a ₱560.5-billion decline in state revenues as businesses went dark and consumers are unable to head out and shop.

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The Duterte administration has also resorted to more borrowing from foreign sources, with an additional ₱310 billion meant to support the local COVID-19 fight plus a $2.35-billion dollar bond float. Still, the DBCC insisted that the debt stock remains "manageable."

​The Philippines spends more than what it can raise as revenues to invest on much-needed infrastructure and support development. The country was on track to rise to an upper-middle income state this year before the pandemic hit.

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"Timely implementation of a well-targeted recovery program, alongside efforts of the private sector, will mitigate the impact of the COVID-19 pandemic," the economic managers added, noting the need to be "more realistic and prudent" towards near-term prospects.

Growth is expected to rebound sharply to 7.1-8.1 percent by 2021, the DBCC said, asserting that the Philippines continues to enjoy "sound fiscal health." Revenues are projected to hit just ₱2.61 trillion this year against ₱4.18 trillion worth of spending.

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The 2021 national budget is also pegged at ₱4.18 trillion, slashed from the earlier ₱4.64-trillion plan to factor in lower tax collections.

​Export plunge seen

The DBCC, composed of the Department of Budget and Management, Department of Finance, and NEDA, also painted a dimmer picture for global trade this year.

Latest projections peg a 4 percent collapse in exports of goods, while imports will likewise decline by 5.5 percent as domestic activity is limited and with the global economy also suffering a downturn. By next year, outbound shipments are seen to bounce back with a 5 percent increase, alongside an 8 percent rise in imports.

The peso is seen to stabilize at the ₱50-₱54 level against the US dollar until 2022. Meanwhile, inflation is seen to soften this year between the 1.75 percent to 3.75 percent range, softer than the original 2-4 percent goal.

Cheap oil will play a major role here, with the Bangko Sentral ng Pilipinas recommending to slash crude oil price assumptions to just $23-$38 per barrel, mirroring global prices amid a supply glut and depressed demand as millions of people stay at home. This is half the $55-$70 per barrel cost estimated back in December.

READ: Low oil prices ‘not great’ news as economies collapse— expert

The oil price slump may be here to stay, with the DBCC sustaining a softer $35-$50 projection for the next two years.