MANILA (BLOOMBERG) - The Philippine economy could face its deepest contraction in more than three decades, with the government now projecting it to shrink by 2 per cent to 3.4 per cent this year in the wake of the pandemic.
The latest GDP forecast is worse than the 1 per cent estimate made by Finance Secretary Carlos Dominguez weeks ago. A 2 per cent contraction will be the deepest since a 6.9 per cent drop in 1985, according to Economic Planning Undersecretary Rosemarie Edillon.
"While that's a significant revision, I think the forecast range may still be subject to downside risks given the need to be very cautious in re-opening the economy," said Euben Paraculles, an economist at Nomura Holdings in Singapore. "Large-scale fiscal easing is also urgently needed but unfortunately the timing of passing a sizable support package is still unclear. That puts the onus on monetary policy in the near-term."
The coronavirus outbreak will cost the economy 2 trillion pesos (S$56 billion) this year or nearly a tenth of gross domestic product, the Development Budget Coordination Committee said in a statement on Wednesday(May 13).
Massive spending will bloat the budget deficit to as much as 8.1 per cent of GDP so the economy could return to growth of a 7.1 per cent to 8.1 per cent next year, it said.
The Philippines, one of the region's fastest-growing economies, was the first country in South-east Asia to shut down large swathes of its economy since mid-March. The restrictions dragged GDP in the first three months to a 0.2 per cent contraction, with the government expecting a deeper slump this quarter.
President Rodrigo Duterte will gradually reopen the economy as the nation can't afford to be in quarantine for a long period, allowing some businesses to restart after May 15 even in the capital region that has the most infections.
The government is banking on a US$160 billion (S$226.8 billion) infrastructure plan to provide a lift to the economy once lockdown measures are lifted.
This year's revenue projection was slashed 18 per cent to 2.6 trillion pesos, while the outlook on expenditures was raised to 4.2 trillion pesos.
While the 2020 budget deficit will be larger than the 5.3 per cent of GDP initially projected in March, the Philippines remains in the median of comparable countries in the region "as long as the ratio does not exceed 9 per cent."