Debt watcher S&P Global Ratings said the Philippines is among the three countries in the Asia-Pacific region that will experience capital flight as economic recession is “guaranteed” in this part of the world because of the spread of coronavirus disease-2019.
“If lingering uncertainty results in a strong preference for US dollars, policymakers in Asia’s emerging markets may be forced into a damaging round of pro-cyclical policy tightening,” Shaun Roache, the chief Asia-Pacific economist at S&P Global Ratings, said in a report titled ‘Asia-Pacific Recession Guaranteed’ published Wednesday.
“The countries most vulnerable to capital outflows remain India, Indonesia and the Philippines,” Roache said.
Roache said Asia-Pacific economic growth in 2020 would more than halve to less than 3 percent as the global economy would enter a recession.
“An enormous first-quarter shock in China, shutdowns across the US and Europe, and local virus transmission guarantees a deep recession across Asia-Pacific,” Roache said. He said recession would mean at least two quarters of well below-trend growth sufficient to trigger rising unemployment.
“Our estimate of permanent income losses is likely to at least double to more than $400 billion,” said Roache. “For credit markets, a key question is how these losses are distributed across sovereigns, firms, banks, and households.”
Roache said China was gradually recovering from an enormous economic blow early in 2020. February data confirmed a huge shock to activity in the first quarter. Investment accounts for about 45 percent of China’s economy and fixed asset investment in January and February combined plunged by almost 25 percent from a year ago.
He said over the same period, industrial production and retail sales fell by 14 percent and 21 percent, respectively.
He said external shocks from the fallout of global viral spread added a new dimension. People flows from the US and Europe would be decimated for at least two quarters, heaping more pressure on the tourism industry.
Roache said the timing of a recovery depends, most of all, on progress in containing viral spread. He said even if major progress was made during the second quarter, after a sustained period of stressed cash flow many firms would be in no position to resume investing quickly.
“Households that have either lost their jobs or have worked fewer hours will spend less. Banks will be busy managing the deterioration in asset quality. There will be pent-up demand but the longer the crisis drags on, the weaker it will be,” he said.
The onslaught of the disease made economists predict that the Philippine economy would likely be missing the official GDP growth target of 6.5 percent to 7.5 percent in 2020 because of the pandemic’s huge impact to the tourism industry, one of the pillars of economic growth.
The National Economic and Development Authority last week said it was looking at a slower 5.5 percent to 6.5 percent GDP expansion for 2020.
Moody’s Investors Service also cut its growth forecast for the Philippines this year to 5.4 percent from its previous estimate of 6.1 percent.
Moody’s said despite the reduction, the Philippines would continue to be one of the strongest economies in the region.