While we have a bit of hope of flat GDP in Q1 buoyed by exports and output in Visayas and Mindanao, the Enhanced Community Quarantine (ECQ) from mid-March to end-April in Luzon will thrust GDP growth to deep negative territory in Q2. Fortunately, crude oil prices are at 20-year lows and so inflation won’t be a concern. But getting supply chains and small businesses back into full operation may take until Q4.
As COVID-19 pandemic continues to batter the economy, bond markets will remain volatile. However, with the ability of the National Government to borrow from abroad and the injection of liquidity by the Bangko Sentral ng Pilipinas (BSP) to combat the virus outbreak’s negative effects on output, employment and income of low-income families, small businesses, etc., bond yields will have a general downward bias, even as these have returned to pre-COVID levels by mid-April. Corporations may defer bond issuances for H2. Furthermore, ROPs and US treasury spreads should narrow as the panic dies down.
The overall outlook remains gloomy as policy makers struggle to bring their economies back to a new normal that may be months ahead. With huge swaths of the population out of a job and firms seek to restore disrupted supply chains, and heavy losses in equities, investors may likely take their time to return into the market. However, with the worst (peak) seems over, stock markets have rebounded a bit from their deep dive. PSEi, for one, has returned to above 5,500 in April and we expect more risk appetite going into H2 with the PSEi ending the year clearly above 6,000.