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UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting reviewed the latest GDP figures in the Philippines.

Key Quotes

“The Philippine economy surprisingly contracted for the first time since 4Q98, by 0.2% y/y in 1Q20 (4Q19: +6.7% y/y). This came in against our estimate (+2.5% y/y) and Bloomberg consensus (+2.9% y/y). 1Q20 GDP contraction was due to three exogenous factors, namely Taal Volcano eruption, declining Chinese tourist arrivals and trade as a result of the COVID-19 lockdown in Wuhan, followed by the enhanced community quarantine (ECQ) measures in mainland Luzon and other parts of the country.”

“The full adverse impact of the COVID-19 pandemic is yet to be seen in 1Q20 as the lockdown on Luzon and other areas has been extended until 15 May. The economy will only be re-opened at a measured pace after mid-May amid lingering global supply disruption and slower overseas remittances inflows. Hence, there will be a much steeper plunge in 2Q20 GDP before recovering gradually from 3Q20 onwards. We downgrade our 2020 full-year GDP outlook for the Philippines to a contraction of 3.5% (from +1.0% previously).

“Although the surprise contraction in 1Q20 GDP and benign inflation environment gives Bangko Sentral ng Pilipinas (BSP) more room to continue easing to support the economy, we think that BSP may be done with its rate cuts at this juncture. The central bank will assess the impact of prior easing steps and the possibility of loosening the mainland Luzon ECQ in mid-May before deciding to further adjust policy rates. Post 1Q20 GDP release, BSP Governor Diokno also commented that the cumulative 125bps rate cuts this year is appropriate to buffer the country’s growth momentum and boost sentiment.”