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THE ECONOMY could contract by 9.8% this year, weighed down by further damage to the economy from calamities, according to Nomura Global Markets Research, adding that the absence of an “additional and substantial” fiscal package to match those implemented by Governments in the region could also trigger another round of easing by the central bank before the end of the year.
Issued after weaker-than-expected third-quarter gross domestic product (GDP) data, the latest estimate represents a downgrade from Nomura Global’s previous projection of minus 6.6% GDP growth. The official government forecast for GDP performance in 2020 is between minus 4.5% and minus 6.6% estimated by the government.
“This reflects in part the impact of the recent typhoons, which caused substantial damage to the agricultural sector, but also, more importantly, our expectation that growth in fiscal spending will continue to be a significant drag on economic recovery in a future. moment in which the confidence of the private sector remains quite weak ”, it said in a note.
The economy contracted 11.5% in the three months to September after a record contraction of 16.9% in the second quarter.
In the fourth quarter, Nomura Global expects GDP to continue to contract, although it will moderate to minus 9.8%. If done, this would mark the fourth consecutive quarter to record declines.
“As was evident from the third-quarter GDP details, the lack of fiscal support will likely weigh on private sector spending, with sentiment weak and business uncertainty still high,” he said.
Capital formation slumped 41.6% in the third quarter, following a 53.7% drop in the three months through June. Meanwhile, government spending growth slowed to 5.8% from 21.8% in the second quarter.
“We believe that the approval of the fiscal measures called Bayanihan II (Law of the Republic No. 11494) is unlikely to significantly increase fiscal expenditures, particularly in capital outlays because their total size was only 0.9% of GDP. “he said, noting that this too is unlikely to support a rebound in public construction activity.
Bayanihan II, approved in September, allocated P165.5 billion in additional pandemic responses. It is the follow-up to RA 11469, which provided P275 billion to address the crisis.
Nomura Global said it does not expect the government to consider further rounds of fiscal packages to revive the economy from the coronavirus disease 2019 (COVID-19) pandemic, as it focuses its efforts on passing the 2021 P4.5 trillion budget. and CREATE (Law of Corporate Recovery and Tax Incentives for Companies) that will reduce the income tax of companies.
“We have argued before that CREATE is unlikely to be effective if the goal is to provide emergency support to vulnerable sectors, as well as stimulate demand in the short term,” he said.
Given a likely slow recovery awaiting the economy, as well as relatively small fiscal measures, Nomura is targeting a 50 basis point cut in the Bangko Sentral ng Pilipinas (BSP) rate in the fourth quarter.
“A benign inflation outlook allows BSP to focus on measures to support growth, and we believe that the third quarter GDP result disappointed official forecasts and thus supports our call for a rate cut in the short term. term, “he said.
Inflation in October was 2.5%, rebounding from 2.3% the previous month. Inflation so far this year averaged 2.5%, above the 2.3% forecast by the BSP for the year, but still within the 2-4% target range.
The central bank has cut rates a total of 175 basis points this year, reducing reverse repurchase facilities, overnight loans and deposits to 2.25%, 2.75% and 1.75%, respectively. The Monetary Board will hold two more policy meetings this year on November 19 and December 17. Luz Wendy T. Noble
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