2.5% contraction for economy seen

June 01, 2020

Sun Life Asset Management Co. Inc. forecasts as much as 2.5-percent contraction for the economy this year, but a recovery should be underway amid the economic impact of the global pandemic.

In a virtual economic briefing, SLAMCI chief investment officer Michael Gerard Enriquez said the asset manager forecasts the domestic economy to post a -2 percent as “best output” this year, a turnaround from the 2.8-percent expansion based on earlier projections.

In the first quarter this year, the economy shrank by 0.2 percent, the first in two decades since 1998.

Economic managers have revised their growth projection for this year to a contraction of between two percent to 3.4 percent.

Citing latest government data, Enriquez said it looks like about two to three months are needed to flatten the curve of coronavirus disease 2019 coronavirus disease infection if strict quarantine and physical distancing is observed.

He forecasts that a month or two is needed to restart the economy, which means this might happen in the third quarter this year.

“By the fourth quarter of 2020, we think this will be a strong quarter as the rebound should be  underway,” he said.

A return to close to normal levels is projected by next year if a vaccine against the virus becomes available, he added.

Enriquez further said the Bangko Sentral was able to implement measures against the negative economic impact of the pandemic early after cutting key policy rates and banks’ reserve requirement ratio since March.

BSP’s policy-making Monetary Board slashed the central bank’s key policy rates by 50 basis points last March 19 to help lift growth as inflation continues to decelerate.

Another 50 basis points were reduced on the BSP key policy rates last April, which brought to 125 basis points the total rate cut to date, including the 25 basis points made last February.

Also, RRR of universal and commercial banks were reduced by 200 basis points to 12 percent last March and this took effect in the first week of April. This is targeted to boost domestic liquidity by around P190 billion to P200 billion.

The reduction is half of the 400 basis points that the MB authorized BSP Gov. Benjamin Diokno to implement for banks this year.

Enriquez expects another 50-basis-point reduction in the BSP rates for this year as well as another 200-basis-point cut in the RRR.