Moody’s sees GDP contracting to 2%

Maintains Phl credit rating at Baa2

MANILA, Philippines — Moody’s Investors Service now expects the Philippine economy contracting this year as the rapid and widening spread of the coronavirus disease 2019 or COVID-19 outbreak, deteriorating global economic outlook, falling oil prices and financial market turmoil are creating a severe and extensive economic and financial shock.

Christian de Guzman, senior vice president for sovereign risk group at Moody’s, told The STAR the debt watcher now expects the country’s gross domestic product (GDP) to contract to two percent this year.

“We are noting a large degree of uncertainty related to the global coronavirus outbreak. Our current forecasts reflect our current views, incorporating our assumptions of global growth and a mild recovery starting in the middle of the year. At this point, we would emphasize the trend and overall direction, which is negative for most sovereigns, rather than the precise magnitude,” De Guzman said.

The latest forecast will be the first full-year economic contraction since the 0.5 percent recorded in 1998 during the height of the Asian financial crisis.

In its latest credit opinion released yesterday, the debt watcher maintained the country’s credit rating at Baa2 or two notches above minimum investment grade on a stable outlook.

Last Thursday, Fitch Ratings lowered its outlook on Philippine debt to stable from positive with a rating of BBB or two notches above investment grade as it expects the country’s GDP to shrink to one percent.

S&P Global Ratings has assigned a BBB+ rating or a just a notch below the much coveted A-scale. The government’s efforts to achieve an A credit rating and upper to middle income status have taken a backseat as focus now is on how to restart the economy.

All the three major credit rating agencies now expect the country’s GDP to contract this year, Moody’s with two percent, Fitch with one percent, and S&P with 0.2 percent.

“As the enhanced community quarantine will encompass much of the second quarter, we expect high-frequency data to continue to deteriorate despite the implementation of countercyclical policy stimulus, including handouts to vulnerable, low-income households,” Moody’s said.

The debt watcher said the global outbreak presents near-term challenges to the country’s credit profile characterized in recent years by strong economic performance, strong

fiscal position, and limited vulnerability to external shocks.

Bangko Sentral ng Pilipinas Governor Benjamin Diokno said the decision of Moody’s to maintain the country’s credit rating and outlook amid the unprecedented collapse of the global economy is actually a vote of confidence on the country’s strong macroeconomic fundamentals and how the government is managing the health crisis.

“The once in a lifetime COVID-19 crisis hit the Philippines from a position of strength. It has ample fiscal and monetary space. While the economy is likely to contract this year, the contraction would be less severe compared to most economies in the world,” Diokno said.

The BSP chief sees a U-shaped recovery as the country’s GDP would likely contract by one percent this year before posting a strong rebound with a 7.8 percent growth next year.