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Economy

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

imageEconomy5 hours ago (Mar 13, 2020 02:03AM ET)

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.”

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

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