The Philippine economy will likely contract by 5 percent year-on-year in the second quarter on the assumption that the enhanced community quarantine would be lifted by May 15, according to a bank economist.
Michael Ricafort, chief economist of the Economics and Industry Research Division of Rizal Commercial Banking Corp., said this would pull down the gross domestic product by 2 percent to 4 percent for the whole of 2020. The GDP shrank by 0.2 percent in the first quarter, the first time in 22 years, according to the Philippine Statistics Authority.
“Philippine GDP [growth] for 2020 could range -2 percent to -4 percent [but would still be a function on low long the lockdowns last], but still better with less contraction compared to other Asian countries [around -5 percent to -10 percent] and other developed countries around the world [around -10 percent to -15 percent estimated in some big European countries]. Thus, the risk of recession is now looming locally and globally,” Ricafort said in a report following the release of first-quarter GDP data on Thursday.
Ricafort said GDP growth could decline by the most in the second quarter because of the extended ECQ in Metro Manila and other high-risk areas up to May 15, representing half of the second quarter.
“Thus, Philippine GDP could contact further in 2Q 2020, by about -5 percent, as the ECQ/lockdown is already longer at 1.5 months [unless extended further] in second quarter 2020 compared with 0.5 month in first quarter of 2020,” he said.
He said GDP growth could still continue to contract in the third quarter, but to a lesser extent as there could be some easing of the ECQ/lockdown.
Ricafort said social-distancing measures would likely continue as the economy reopens gradually and stimulus measures and monetary policy easing measures are taken to cushion the business/economic losses from Covid-19.
He expressed optimism that the economy could bounce back in fourth quarter of 2020, with the assumption that the pandemic would be put under control by then.
“GDP growth for 4Q 2020 could already be positive at low single-digit levels on the premise that the COVID-19 could have already been better controlled/contained by then that would result in further gradual resumption of business/economic activities,” he said.
He said that stimulus measures and monetary policy measures could have greater effect by the fourth quarter on the assumption that business/economic activities would pick up or rebound further from the third quarter.
“The Christmas season could also fundamentally support increased business/economic activities in 4Q 2020,” he said.
Ricafort said the economy could recover in about one to two years, depending on how long the lockdowns would last and how the pandemic would be controlled or contained.
“Thus, the economic contraction locally and worldwide [the biggest contraction since the Great Depression] would require all the support necessary in terms of record stimulus measures, monetary easing measures and other interventions to prevent this health issue from becoming/unraveling into something that is more economic or financial in nature as well as offset/mitigate the risks of recession that is lurking locally and worldwide,” Ricafort said.
He said the fiscal stimulus and monetary stimulus measures might continue. “Any further cut in local policy rates by at least -0.25 from the current record low of 2.75 percent and any further cut in banks’ reserve requirement remain possible any time soon, on top of other fiscal stimulus measures,” he said.
“The economy needs all the support/tools/measures now to prevent the economic/GDP contraction from spiraling further and somewhat soften the impact of the economic contraction/losses especially on the most vulnerable sectors,” he said.