🔥 Premium AI-powered Stock Picks from InvestingPro Now up to 50% OffCLAIM SALE

Manila’s Lockdown Is Set to Curb Philippine Growth, Adds to Rate Cut Bet

Published 03/13/2020, 10:26 AM
Updated 03/13/2020, 02:04 PM
Manila’s Lockdown Is Set to Curb Philippine Growth, Adds to Rate Cut Bet

(Bloomberg) -- A monthlong lockdown in the Philippine capital to contain the spread of coronavirus is set to curb economic growth and make an interest-rate cut next week more likely.

Growth could weaken to below 6% in the first quarter of the year, according to Nicholas Mapa, an economist at ING Bank in Manila. With more than 12 million people, the Manila region accounts for 40% of the Philippines’ gross domestic product, a figure that rises to nearly two-thirds if you include surrounding localities, he said.

The Philippine Stock Exchange Index dropped by more than 11% early Friday, then recouped part of the decline after a 15-minute trading halt. The index was down 3.9% at 5,514.20 as of 10:18 a.m., its lowest level since November 2012. The peso fell for a third straight day, to 51.145 to the dollar.

President Rodrigo Duterte said Thursday night he’s placing the capital region on lockdown until April 14, restricting entry for travelers from countries with local transmission and suspending domestic travel to and from Metro Manila.

“Consumption will bear the brunt of the slowdown, with restricted movement for Filipinos and curfews in effect,” Mapa said Friday. “Growth will likely drop below 6% in the first quarter and likely stay at this level” if the outbreak persists.

The lockdown also makes an interest rate cut next week a certainty, with the possibility of the central bank moving by a bigger-than-projected 50 basis points, said Gareth Leather, an economist at Capital Economics Ltd.

The central bank lowered its benchmark interest rate last month by 25 basis points to 3.75% -- its fourth cut in the past year -- in what it described as a pre-emptive move. The bank won’t hold an off-cycle rate meeting, Governor Benjamin Diokno said Thursday. He has quarantined himself after coming into contact with an infected person, and doesn’t plan to hold a press briefing following the March 19 policy meeting.

The government had forecast that gross domestic product would grow 6.5%-7.5% this year, but the virus could shave as much as 1 percentage point off that estimate, Economic Planning Undersecretary Rosemarie Edillon told the Philippine Senate last week.

Philippine government agencies will be reduced to skeleton crews, meaning they probably won’t be rolling out any major infrastructure projects or hiring workers, Mapa said. Capital formation will likely be subdued, with limited appetite for long-term investments in such a volatile situation, he said.

“Expect more substantial stimulus from the BSP and the national government to insulate the economy,” Mapa said. Investors “note that the Philippines has the most space in terms of stimulus, both on monetary and fiscal policy, and they have yet to wield it.”

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.