Bangko Sentral ng Pilipinas Governor Benjamin Diokno on Monday assured the economy remains robust despite the record second-quarter contraction of 16.5 percent.
Diokno also dismissed as “grossly exaggerated” the negative reactions from several quarters on the second-quarter gross domestic product decline because of the COVID-19 pandemic, saying the economy was fundamentally sound and strong.
“The 16.5-percent contraction of Q2 GDP does not mean that the Philippine economy is structurally weak. It is inappropriate to compare the second-quarter performance of the economy with other crises in recent Philippine history: the 1984-85 pre-Edsa 1 crisis, the 1997-98 Asian financial crisis and the 2007-2008 global financial crisis,” Diokno said in a message.
He said he remembered it vividly that in previous crises, the peso depreciated, interest rates rose, public debt-to-GDP ratio expanded, the gross international reserves thinned and the banking industry wobbled.
“In sum, there were inherent weaknesses in the economy then. I recall that in the ‘80s, the Philippines belong to a select group called heavily indebted countries [HICs],” he said.
He said the cause of the most recent economic episode was the strict, nationwide lockdown to save lives and allow the build-up of health facilities and testing capacity amid the pandemic.
“It is not because the economy was weak. The contraction is temporary. The economy is robust, characterized by strong fundamentals: falling interest rates, appreciating peso making it the most appreciated currency in Asia, sound external sector with gross international reserves as high as $94 billion, low debt-to-GDP ratio which is the envy of many emerging economies and robust banking industry with good capital adequacy ratio and low net performing loans ratio,” Diokno said.
He said the setback was temporary and recovery could come quickly once consumer confidence returned, factories fired up, construction activity particularly the ‘BBB’ program was ramped up and transportation fully restored.
“The immediate cause for the economic plunge in Q2, that is the strict, nationwide lockdown, is a thing of the past. In the near future, while waiting for the vaccine, policy makers will opt for targeted, localized, village-level lockdowns. Hence, the adverse economic impact on jobs, incomes, and livelihoods will be subdued,” Diokno said.
The economy crash-landed into a technical recession as the gross domestic product contracted by 16.5 percent in the second quarter, the lowest in nearly four decades.
The disappointing figure brought the average economic performance in the first semester to -9 percent, slower than the government’s previous projection of a 2-percent to 3.4-percent contraction for the whole year.
The Philippines posted the deepest contraction among Asean economies in the second quarter. In the same period, Indonesia contracted by 1.2 percent; Thailand, -6.5 percent; and Malaysia, -3.9 percent. Vietnam grew by 2.1 percent.