Philippine economy shrank at record pace in 2020, outlook gloomy

The Philippine economy shrank at a slower pace in the fourth quarter of last year, helped by higher government spending, but saw a record full-year contraction in 2020 as it grappled with the fallout of the COVID-19 pandemic.

Gross domestic product (GDP) shrank by 8.3 percent in the September-to-December quarter from a year earlier, the statistics agency said. Economists in a Reuters poll had forecast an 8.5 percent contraction after a fall of 11.4 percent in the third quarter.

A 4.4 percent year-on-year increase in government spending helped to limit the slump.

For the whole year, GDP shrank 9.5 percent, the biggest contraction on record and compared with a government forecast for an 8.5-9.5 percent slump in 2020.

[Bloomberg]

The Philippines, which has the highest number of coronavirus infections and COVID-19 deaths in Southeast Asia after Indonesia, suffered its first recession in nearly 30 years in the second quarter of 2020.

“Private consumption remained weak,” said Economic Planning Secretary Karl Chua at a briefing. “Restrictions on the demand side, notably the mobility of children and families, prevented private consumption from making a stronger comeback.”

President Rodrigo Duterte has eased quarantine curbs from the strictest level imposed in March last year, but partial restrictions remain in the capital region as local cases reached more than half a million and deaths exceeded 10,000.

The restrictions reduced household spending by 2.2 billion pesos ($45.72m) a day, the government said.

The economy grew by a seasonally adjusted 5.6 percent in the fourth quarter compared with the previous three months, slowing from 8 percent growth in July-September period.

Chua said the prospects for 2021 were “encouraging”, reiterating a government forecast for 6.5 percent-7.5 percent growth this year.

But some analysts say conditions for the rest of the year are likely to remain tough.

‘Economic scars’

“The easing in the [year-on-year] contraction in [the fourth quarter] was likely driven by a recovery in exports and the further easing of restrictions to movement. But both of these boosts have mostly run their course in the near term,” Alex Holmes, Asia economist at research firm Capital Economics, said in a note sent to Al Jazeera.

“What’s more, the economic scars from the downturn, including business insolvencies, weaker household balance sheets and high unemployment, will weigh heavily on demand for many months to come. Meanwhile, the tourism industry is likely to remain on its knees,” Holmes added.

The recovery hinges on the government’s plan to vaccinate as many as 70 million people, or two-thirds of the population, this year though supply difficulties could delay the timeline.

The Bangko Sentral ng Pilipinas (BSP), the country’s central bank which delivered 200 basis points of interest rate cuts last year to try to soften the blow from the pandemic, believes its current accommodative monetary policy stance is sufficient to revive growth.

“[The BSP] is likely out of ammunition with the policy rate at 2.0 percent while inflation trends closer to the top-end of their 2-4 percent inflation target,” said ING senior economist Nicholas Mapa.

The 2021 budget of 4.5 trillion pesos ($93.5bn), while being 10 percent higher than the 2020 budget, “will not likely be enough to move the needle”, he added.