Manila’s lockdown set to curb growth

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% on March 13, then recouped part of the decline after a 15-minute trading halt and as state pension funds were ordered to buy shares. The index was down 5% at 5,449.58 as of 11:37 am. The peso fell for a third straight day, to 51.285 to the dollar.
“While the lockdown announced last night is not as draconian as compared to other countries, social distancing will be the norm and this will invariably hurt many sectors of the economy,” said Nicky Franco, head of research at Abacus Securities Corp. in Manila. “Right now it’s not impossible for 1Q GDP to be worse than last year’s 5.6%, despite the low base.”
Lockdown
President Rodrigo Duterte said night he’s placing the capital region on lockdown until April 14, restricting entry for travellers 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. “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.
Skeleton Crews
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.”
Other measures, mainly economic, are in place. Finance Secretary Carlos Dominguez said Friday he had instructed the Government Service Insurance System and the Social Security System to at least double their daily average purchase of stocks to support the equities market. The government also imposed a 60-day freeze on prices of basic goods in Metro Manila, Trade Secretary Ramon Lopez said in a televised briefing.