Philippines awaits recovery package as GDP falls for first time since 1998

07, May. 2020

Poblacion, Makati, Metro Manila (Photo by Dayanara Nacion on Unsplash)
Poblacion, Makati, Metro Manila (Photo by Dayanara Nacion on Unsplash)

By Darlene Basingan

MANILA, NNA – The Philippine economy contracted for the first time since 1998 in the January-March quarter of 2020 as strict restrictions to curb the coronavirus outbreak battered businesses and consumer spending.

Fueling fears of a looming recession this year, the country’s gross domestic product (GDP) dropped 0.2 percent as opposed to 5.7 percent growth enjoyed in the first quarter of last year.

The poor result is the first contraction since the minus 3.0 percent GDP recorded in the fourth quarter of 1998, when the country suffered the brunt of El Nino weather conditions and the Asian financial crisis.

In a virtual press briefing on Thursday, Karl Kendrick Chua, Acting Secretary of the National Economic and Development Authority (NEDA), said the slump was largely due to the pandemic impact on the sectors of tourism and trade as well as containment measures imposed to prevent the contagion from spreading further.

The Taal Volcano eruption in January, which affected the Calabarzon, was also another reason as the province contributes roughly 50 percent to the economy, he explained.

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“If I compare this to previous crises, the magnitude of the impact suggests that this decline is actually respectable. Compared to other countries, we are on a better footing. We have given priority to saving lives, which cannot be costed, over the temporary setback in the economy,” said Chua.

In the first quarter, the pandemic badly hit household spending, a main economic driver which accounts for around 74.5 percent of the country’s economy. It rose only by 0.2 percent, a far cry from the 6.2 percent jump achieved during the same period last year. It was also the worst performance since the first quarter of 1986.

The sector for agriculture, fishery and forestry saw a 0.4 percent decline, while the industrial sector fell 3.0 percent as the economic fallout dealt a blow to manufacturing and construction. The services sector growth slowed to 1.4 percent, down from 7.1 percent last year.

Government expenditures, which have risen in recent years as the Rodrigo Duterte administration embarked on infrastructure enhancements, continued to sustain growth at 7.1 percent.

Chua foresees deeper contraction in the second quarter as the lockdown was extended in April. But he noted that since restrictions were eased in many parts of the country in May, there is still a chance of minimizing the lockdown impact on the economy.

For 2020, he said the government is expecting a best-case scenario of zero growth to a worst-case of minus 0.8 percent.

After enjoying more than 80 quarters of positive growth, the Philippines now faces a high risk of entering a recession, with many economists also forecasting a negative growth for this year.

Nicholas Antonio Mapa, senior economist at the ING Bank in Manila, put it bluntly as he told NNA, “It’s all but a formality. The Philippines will post a recession by 2Q as the economy bears the full brunt of the lockdown in April and May.”

He said recovery performance would depend on when lockdowns would be lifted completely and the government's recovery plan.

Chua said a recovery package is being crafted to address the crisis impact on jobs and businesses.

The government has proposed a post-pandemic stimulus recovery package worth 3.3 percent of the country’s GDP, which is seen as relatively lower compared to that of its neighbors. The package is still up for congress’ approval, noted Noelan Arbis, an economist at HSBC bank.

So far, the country has given billions of pesos in cash aid to the poor and workers.

But Arbis warned that any "slow passage of the stimulus could lead to continued economic contraction for the remainder of the year and limit the economy's ability to bounce-back once the pandemic passes.”

Michael Ricafort, economist at the Rizal Commercial Banking Corp., told NNA the economy may take about one to two years to recover, depending on how well the coronavirus outbreak is being contained as well as on the availability of a vaccine to cure the deadly respiratory Covid-19 disease brought about by the novel coronavirus which has crippled economies across the globe.

The Bangko Sentral ng Pilipinas (BSP), which sees a U-shape growth trajectory or longer recovery with the economic activity rebounding in the July-September quarter, has predicted a contraction ranging from 1.0 percent to 0.0 percent for 2020.

“The economy is expected to bounce back to 7.8 percent growth in 2021,” BSP governor Benjamin Diokno said in a press briefing on Thursday.

BSP has already cut benchmark rate and banks’ reserve requirement ratio this year, apart from easing measures to support banks and borrowers.

The Philippines began banning flights from China at the outset of the pandemic in February. It is also one of the first countries to implement a blanket restriction, putting the entire Luzon island in a lockdown on March 17.

Metro Manila, Cebu province and other areas, which are mostly populous with high incidence of positive cases are still under a severe lockdown. The government has yet to decide on whether it would extend the lockdown beyond the deadline of May 15.

On May 1, President Duterte eased restrictions in some parts of the country with the lowest risk of Covid-19 infections to help restart the economy where possible.

On Thursday, Philippines' health ministry reported 27 more coronavirus deaths and 339 new cases of infection. This brings the total fatalities to 685 and the number of positive cases to 10,343.