MANILA • 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 amid the pandemic.
The latest gross domestic product (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.
Mr Euben Paracuelles, an economist at Nomura in Singapore, said: "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 reopening the economy. Large-scale fiscal easing is also urgently needed, but unfortunately, the timing of passing a sizeable support package is still unclear. That puts the onus on monetary policy in the near term."
The coronavirus outbreak will cost the economy two trillion pesos (S$56 billion) this year or nearly a tenth of GDP, the Development Budget Coordination Committee said in a statement yesterday.
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 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 cannot afford to be in quarantine for a long period, allowing some businesses to restart after tomorrow, even in the capital region, which has the most infections.
The government is banking on a US$160 billion (S$227 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.