Philippines plunges into recession after Q2 GDP fell 16.5%
By Darlene Basingan
MANILA, NNA – Mauled by the coronavirus pandemic, the Philippines has officially declared that it has plunged into a technical recession after its second quarter gross domestic product (GDP) fell by 16.5 percent.
On Thursday, the Philippine Statistics Authority (PSA) said Q2 performance was the worst since the agency began recording quarterly economic data in 1981. It also marks the first time the country entered a technical recession since 1991 when Mount Pinatubo volcano erupted.
The steep decline in the April-June period reflects the crippling impact of one of the longest and most stringent lockdowns in the world to fight the spread of the novel coronavirus.
The national statistician also revised the first quarter GDP from -2 percent to -7 percent, which further deepened the contraction in the first half of 2020 by 9 percent.
PSA The government’s economic team now expects the economy to shrink 5.5 percent this year after revising earlier decline estimates of 2 percent to 3.4 percent. However, it believes the economy will rebound strongly next year.
Karl Chua, the country's socio-economic planning secretary, said, “Without doubt, the pandemic and its adverse economic impact are testing the economy like never before. But unlike past crises, the Philippines is now in a much stronger position to address the crisis.”
Q2 decline was driven largely by a record 15.5 percent drop in private consumption, which normally contributes about 70 percent to the GDP.
Gross capital formation, another major GDP contributor, tumbled 53.5 percent, its lowest since the 64.6 percent drop in the first quarter of 1985, according to PSA.
While government spending posted positive growth of 22.1 percent, industrial and service sectors suffered record year-on-year decline of 22.9 percent and 15.8 percent, respectively. Agriculture, forestry and fishing posted a modest growth of 1.6 percent.
However, the Southeast Asian country is hopeful of a recovery of 6.5 to 7.5 percent next year through 2022 due to its “pump priming activities” to stimulate the economy this year.
But there are worries that the re-imposition of stricter lockdown measures in the capital Metro Manila and surrounding areas this week might curtail growth in the second half of the year.
Noelan Arbis, an economist at HSBC bank, said the contraction in almost all components of consumption might mean that the reinstated lockdown could curtail consumption again.
Arbis also noted that the poor Q2 performance is “one of the biggest economic contractions reported globally as a result of COVID-19.”
While recognizing that the new lockdown would be a step backwards in recovery efforts, Karl Chua said the government would take the opportunity to further improve the healthcare system as this would “pave a stronger foundation for the resumption of the economy.”
Echoing this belief, Finance Secretary Carlos Dominguez said in a press briefing, “The short-term lockdown will be good in the long run, if less people are going to be infected in the future and more people can work.”
“We review this shutdown periodically. If indicators are good, then we can reopen again so that people can resume their livelihood activities and again consume, buy things so the MSMEs (micro, small and medium enterprises) and big companies can recover,” he added.
Public transport and many businesses were forced to close again in the capital, after 80 medical groups representing a million doctors and nurses brought to attention that the hospitals had been overwhelmed by a relentless surge in COVID-19 cases.
They said the Philippines was losing the fight against the pandemic and warned of a collapse of the healthcare system if there are no tighter controls.
In the region, the country has now the highest number of coronavirus infections and second-highest COVID-19 deaths, surpassing Indonesia
Nicholas Mapa, chief economist at the ING Bank Manila, said the country may not see a quick return to the usual 6 percent growth it had enjoyed before the pandemic. He forecasts the economy to contract by 7 percent this year.
“Unfortunately, it looks more probable that the Philippines is entering a lower growth path, the dirty-L recovery,” he lamented.
While economic recovery is seen as largely dependent on the containment of the virus, politicians and analysts believe more stimulus measures would also help the country recover faster. The Duterte administration has yet to approve additional stimulus packages.
“We believe the absence of a big-ticket stimulus program could weigh on growth this year and a future recovery,” said Arbis of HSBC.
Meanwhile there are two stimulus packages being deliberated in Congress. One of them comes under the Accelerated Recovery and Investments Stimulus for the Economy Bill (ARISE), which is designed to allot a proposed 1.3 trillion pesos ($26.5 billion) to help businesses.
The other proposal is the administration-backed “Bayanihan: We Recover As One” program which will dispense 162 billion pesos worth of relief to the people. It has been approved by the House for second reading.
“Hopefully the government and the economy can come out swinging to deliver a decisive counter flurry which may be enough to right the economic ship,” said Mapa of ING.