AN international group of economists forecasted that the Philippines and Indonesia might have to wait until 2022 for their economies to recover if a “second wave” of the coronavirus pandemic hits.
“Given the still-elevated number of fresh daily infections in both countries … we expect both [countries] to see a delayed and shallow recovery with economies only returning to form in early 2022,” said Nicholas Mapa, senior economist of ING Group.
ING Group is a Dutch multinational banking and financial services corporation.
Mapa said it is crucial for both governments “to limit the spread of the virus even as economies reopen,” adding that a “second wave” may force governments to reinstate lockdown measures.
“A return to lockdown measures would be detrimental to growth prospects, squander the initial fiscal stimulus efforts, and delay the recovery for as long as lockdown measures need to be in effect,” said Mapa.
Both countries implemented lockdowns to quell the spread of the coronavirus in the first half of the year.
The measures led to the rise of unemployment rate in the Philippines to 17.7 percent or equivalent to about 7.3 million jobless Filipinos.
There were at least 6.88 million unemployed Indonesians in February according to authorities claiming that the number “does bot reflect the impact” of the pandemic.
In the first quarter, the Philippine Gross Domestic Product fell by 0.2 percent due to the implementation of the enhanced community quarantine in March, while Indonesia managed to grow by three percent as it only imposed a lockdown in April.
“The combination of subdued demand, mounting job losses, and stalling consumer sentiment is likely to manifest in severe contractions of GDP for both Indonesia and the Philippines,” said Mapa.
Quarantine measures have a “substantial” impact on consumption because of mobility restrictions and the stay-at-home protocol.
Mapa said both Indonesia and the Philippines are “heavily reliant on household spending,” with consumption accounting for 55 percent and 65 percent of their respective economies.
“Lockdown measures are thus expected to have had a significant impact on growth prospects,” he said.
The economist warned that for the rest of the year, “we now expect GDP to fall to -2.9 percent for the Philippines and -1.9 percent for Indonesia with consumption likely to stall with only a modest recovery towards the end of the year.”
He said consumer sentiment is likely to “remain severely eroded with investment activity anemic.”
The Philippine peso has appreciated by 2.25 percent from March 16 to June 1 and was considered to be the “best-performing currency in the region” despite the lockdown.
However, before the move to relax the lockdown restrictions, the Philippine currency depreciated by 0.87 percent.
Mapa said the Philippine peso is expected to face “mild depreciation pressure” in the coming months “as real demand for the dollar accelerates on import requirements.”
The Indonesian rupiah appreciated by 8.7 percent from April 10 to June 1 with the help of the Bank Indonesia “refraining from cutting policy rates at its April and May meetings.”
In June, the rupiah strengthened by 3.38 percent, “further riding the risk wave with foreign investors returning to both the bond and equity markets.”
Mapa said Rupiah is expected to have a “mild appreciation trend” over the next few months.