New wave of virus delays recovery of PHL
A further rise in 2019 coronavirus disease (COVID-19) infections will likely further delay the recovery of the Philippine economy, S&P Global Ratings said on Monday.
If the recovery fails, S&P said in a separate report that the financial buffers of some Philippine banks may not be able to absorb a rapid deterioration in asset quality.
“The main emerging markets in this region – Indonesia, Malaysia, the Philippines and Thailand – live with thffare new waves that only seem to have reached their peak recently. S&P thinks this could extend their path to recovery, “he said in a” Delay upside risk for Southeast Asian recovery “note.
The Debt Watcher’s baseline forecast for the Philippines this year remains at 9.6%, much faster than the government’s 6.5% to 7.5%. Last year, the economy fell a record 9.5% as the government put in place one of the toughest and longest lockdowns in the world.
The baseline estimate assumes the Philippines’ production level will return to its pre-pandemic level by December 2021, although downside risks have emerged due to a possible increase in COVID-19 cases. .
This is a slower recovery than in Indonesia (April 2021), Malaysia (July 2021) and Thailand (August 2021), where production is likely to return to pre-pandemic levels earlier in the year. year.
“The biggest threat to a timely economic recovery is individual consumer behavior, as people stay more at home and spend less,” he said, defining the recovery as quarterly growth above trend.
Household consumption accounts for at least 70% of gross domestic product (GDP) in the Philippines and almost 60% in Indonesia and Malaysia.
Given the continued downside risks associated with COVID-19 outbreaks, S&P has reduced sequential growth prospects for the Philippines. If the recovery is delayed by two months, S&P expects GDP growth of 7.7% this year. GDP is expected to grow 7.4% if there is a four-month delay in the recovery, and 7.1% if there is a six-month delay.
If the recovery is delayed by six months, Philippine production will not return to pre-pandemic levels until May 2022.
“In a six-month delay scenario, we factor in more economic scars from a prolonged recession, which causes a greater amount of permanent economic damage,” S&P said.
“The more an economy is stuck with jobless resources, the greater the damage to balance sheets and workers. More businesses would close and more workers would lose their jobs, skills and motivation, ”he added.
Amid limited testing capacity compared to Western economies, S&P noted that hospital capacity is a more important indicator of government policies than reported cases. The Debt Watcher’s baseline scenario is that the region will experience widespread vaccine distribution by the second half of the year, which could then stimulate economic activity.
In the Philippines, infections rose by 2,288 to 563,456 on Monday. Data from the Ministry of Health showed that more than half of isolation beds (62%), intensive care unit beds (68%) and service beds (78%) remain available.
The vaccines are expected to arrive in the country within a month. The government aims to vaccinate 70 million Filipinos by the end of 2021.
Government officials have been pushing for further easing of restrictions to stimulate economic recovery.
“LONG ROAD TO RECOVERY”
In a separate report, S&P said the Philippine banking sector is on a “long road to recovery” and asset quality is expected to deteriorate further as banks recognize the extent of the pandemic’s impact on financial markets. borrowers.
The Debt Watcher said the industry’s Non-Performing Loan (NPL) ratio could reach 6% in 2021, up from 3.6% in 2020.
“High provisioning in 2020 and capital reserves can save the industry time, assuming the economic recovery stays on track. Our negative outlook on rated banks reflects our view that the financial buffers could not absorb the rapid deterioration in asset quality that could ensue if the recovery derails, ”S&P analysts Nikita Anand and Ivan Tan said.
NPLs could increase in the first quarter, with the end of loan moratoria and budget support.
“We believe NPLs could peak in the second half of the year … A rebound in economic activity along with ultra-low interest rates should support borrowers’ ability to repay in 2022,” they said.
Banks are likely to see a slight recovery in profits this year and are unlikely to revert to pre-pandemic state Fifinancial performance through 2023, according to S&P analysts. – Luz Wendy T. Noble