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Recession as GDP nosedives

Pandemic sends economy plunging by 16.5% to a 39-year low

The COVID-19 pandemic has pummeled the economy into a recession—its first in three decades—as gross domestic product (GDP) fell by 16.5 percent in the second quarter after declining 0.7 percent in the first three months, the Philippine Statistics Authority (PSA) said Thursday.

Recession as GDP nosedives

National Statistician Dennis Mapa said this brought the contraction to 9 percent for the first half, the steepest decline among ASEAN economies. In the same period, Thailand’s economy contracted 6.5 percent while Malaysia’s shrank by 3.9 percent.

The second quarter decline was the worst since records began in 1981.

As a result of the poor first half, the government is now looking at a full-year GDP contraction of 5.5 percent.

PSA data showed that the main contributors to the decline were manufacturing, -21.3 percent; construction, -33.5 percent; and transportation and storage, -59.2 percent.

READ: Market rallies, ignores economic plunge in Q2

Among the major economic sectors, only agriculture, forestry, and fishing increased with 1.6 percent growth. Industry and services both decreased during the period by 22.9 percent and 15.8 percent, respectively.

On the expenditure side, major items that declined were household final consumption expenditure, 15.5 percent; gross capital formation, 53.5 percent; exports, 37 percent; and imports, 40 percent.

On the other hand, government final consumption expenditure grew 22.1 percent.

Net primary income from the rest of the world and gross national income declined by 22 percent and 17.0 percent, respectively.

Mapa said the value of the Philippine economy in nominal terms at current prices stood at P8.6 trillion in the first half, lower than the P9.28 trillion in the same period last year.

Finance Secretary Carlos Dominguez III said if the government did not impose responses to contain the spread of the disease, including lockdowns that encompassed most of the second quarter, GDP would have contracted by a steeper 11.5 percent in the first half.

READ: Palace upbeat on recovery from slump

Bangko Sentral ng Pilipinas Governor Benjamin Diokno, on the other hand, said, “The worst is behind us, but we are not out of the woods yet.”

“The Q2 GDP numbers were largely due to the comprehensive lockdown during the quarter. As we gradually reopen the economy, economic activity has started to pick up. No doubt, given the sharp drop of the economy in Q2, I am convinced that Q3 will be better than Q2, and that Q4 will be much better than Q3,” Diokno said.

He said the days of comprehensive, nationwide lockdowns were over as they exact a heavy toll on the economy, jobs, livelihoods and incomes.

“Henceforth, the focus of national leaders should be on more localized village level or building level containment. Isolation facilities should be built in all major cities and large municipalities, in support of the government’s test, trace and treat strategy,” Diokno said.

ING Bank Manila senior economist Nicholas Mapa said the 16.5-percent contraction in the second quarter was “worse than expected” with the strict lockdown measures “shackling once-promising growth momentum.”

“The Philippine economy crash-landed into recession with the 2Q GDP meltdown showcasing the destructive impact of lockdowns on the consumption-dependent economy. With record-high unemployment expected to climb in the coming months, we do not expect a quick turnaround in consumption behavior, all the more with COVID-19 cases still on the rise,” Nicholas Mapa said.

He said with consumption cratering by 15.5 percent, investor sentiment will likely go into freefall with the recent investment boom snuffed out by the pandemic.

He said that while emphasis on infrastructure under the government’s Build, Build, Build program might revive construction activity to some extent, household spending would continue to be sidelined for the foreseeable future because of rising unemployment and a downturn in remittances.

READ: Duterte OKs 2021 recovery budget

Acting Socioeconomic Planning Secretary Karl Chua said while the decline in Q2 GDP was huge, signs of recovery were beginning to be seen. He said manufacturing production, exports, and imports have taken a U-turn as the pace of decline slows.

“The volume of production index was -39 percent in April but improved to -19 percent by June. The second quarter contraction averaged -29 percent, and we expect it to gradually recover in the coming months,” he said.

“Similarly, exports and imports are beginning to recover. Exports improved from -50 percent in April 2020 to -13 percent in June 2020, and averaged -30 percent in the second quarter. Exports to China, one of our largest trading partners, improved from -55 percent in April to a 2.8 percent expansion in June. As China’s economy improves in the second semester, we can expect export growth to follow,” Chua said.

Imports, which support both household consumption and business investment, also recovered gradually from a large contraction of -65 percent in April to a slower contraction of -25 percent in June, or an average decline of -44 percent in the second quarter.

Taking into account the second-quarter contraction, the Asean+3 Macroeconomic Research Office has revised its GDP forecast for the Philippines to -6.6 percent for 2020 and a 6.5-percent expansion for 2021.

In a report, AMRO said Thursday it expects a gradual U-shaped recovery in the ASEAN+3 region, led by China. Regional growth is expected to slow sharply this year, to 0.1 percent, from 4.8 percent in 2019, before rebounding strongly to 6.0 percent in 2021.

“[T]he biggest challenge facing ASEAN+3 policymakers in the second half of 2020 will be balancing the trade-off between easing restrictions to revive their economies and risking another wave of infections. Managing the exit from the raft of pandemic policies will be key to regional financial stability,” AMRO said.

Last year, the economy managed to grow by 6 percent, the low end of the target range of 6 to 7 percent despite the delay in the approval of the P3.7-trillion national budget. Before the onset of the pandemic, economic managers projected a 6.5 to 7.5-percent expansion this year, banking on infrastructure projects under the BBB program, consumption spending and investment.

But the first quarter GDP contracted by 0.2 percent, a reversal of the 5.7-percent growth a year ago and 6.4 percent expansion a quarter ago, due to the economic impact of the Taal Volcano eruption in January and exacerbated by the pandemic.

On Wednesday, PSA revised the first quarter GDP contraction to 0.7 percent from the preliminary estimate of 0.2 percent. 

As health workers struggle to cope with the influx of patients, more than 27 million people in Metro Manila and four surrounding provinces--which accounts for more than two-thirds of the country’s economic output--went back into a partial lockdown for two weeks on Tuesday to help ease the strain on hospitals.

But President Rodrigo Duterte, who was reluctant to tighten restrictions after millions lost their jobs in the first shutdown, has warned the country cannot afford to remain closed for much longer. 

“The problem is we don’t have money anymore. I cannot give food anymore and money to people,” Duterte said Sunday.

The country’s economic woes have been exacerbated by a drop in remittances from the legion of Filipinos working abroad who typically send money to their families every month, which fuels consumer spending -- the main driver of growth.

Remittances dropped 6.4 percent in the first five months, compared with the same period last year, according to the central bank, as thousands of seafarers, cleaners and construction workers lost their jobs and returned home.

Consumer spending in the second quarter plummeted 15.5 percent, the statistics agency said.

“It will be a rough road to recovery as trade-offs between economic recovery and health will remain a big challenge to both the private and public sectors,” said Emilio Neri, lead economist at Bank of the Philippine Islands. With AFP

Topics: COVID-19 pandemic , Philippine Statistics Authority , gross domestic product
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