Despite COVID-19, Fitch unit keeps Philippines GDP outlook

MANILA, Philippines — Fitch Solutions Macro Research is maintaining its gross domestic product (GDP) growth forecast for the Philippines for now despite the outbreak of coronavirus disease (COVID-19).

The research arm of the Fitch Group has retained the projected GDP growth of the Philippines at 6.3 percent this year after hitting an eight-year low of 5.9 percent last year from 6.2 percent in 2018.

Economic managers penciled a GDP growth of between 6.5 and 7.5 percent for this year.

The soft global markets amid the US-China trade war, the tightening cycle by the Bangko Sentral ng Pilipinas (BSP) that translated to a 175 basis points jump in interest rates as well as the delayed passage of the 2019 national budget dragged the country’s economic growth last year.

The BSP’s Monetary Board has so far slashed interest rates by 100 basis points since May last year, partially unwinding the tightening cycle in 2019 amid the benign inflation environment and slower-than-expected GDP growth.

The central bank also lowered the reserve requirement ratio for big and mid-sized banks by 400 basis points and for small banks by 200 basis points last year freeing up P450 billion to boost economic activity.

BSP has committed to reduce the ultra high RRR to single digit level by 2023 from 20 percent two years ago from the current level of 14 percent.

BSP Governor Benjamin Diokno has signaled a total 50 basis points rate cut this year.

The BSP chief, however, is in no hurry after cutting interest rates by 25 basis points last Feb. 6.

Fitch Solutions slashed its global growth forecast to 2.6 percent instead of 2.7 percent this year due to the rapid spread of COVID-19 that originated from Wuhan, China.

For one, the research arm lowered the projected economic growth of China to 5.6 percent instead of 5.9 percent for 2020.

“We see more revisions forthcoming for at least two reasons,” it said.

Fitch Solutions said the tight trade and investment linkages across Asia have started to result in supply chain issues across the Asian region.

 It added there could be negative growth spillovers via commodity and tourism channels given that China is one of the largest consumers of commodities and the largest source of tourists for many countries.

“As such, we could see our global growth forecasts fall slightly over the coming weeks. The overall impact on growth, however, is still unknown as it will largely depend on how long the Chinese authorities will take to bring the coronavirus outbreak under control,” Fitch Solutions said.