The Philippine economy contracted for the first time in more than two decades during the first quarter, but economists warned on Thursday that the worst was likely yet to come as the country reeled from the coronavirus pandemic.
Gross domestic product (GDP) shrank 0.2 percent in January-March, its worst performance since 1998 during the Asian financial crisis, the government said as the Philippines joined a long line of countries reporting devastating figures resulting from widespread lockdowns that had ravaged economies.
Recession likely
Private sector economists warned that the second quarter would shrink deeper as the lockdown imposed on Luzon and other parts of the country had its first full month in April and was extended in Metro Manila and other high-risk parts of the country up to May 15.
What is likely to come is a recession, stemming from two straight quarters of contraction, they said.
But acting Socioeconomic Planning Secretary Karl Kendrick Chua expressed optimism that the loosening of quarantine restrictions after May 15 would ease the economic pain and eventually bring about a revival by the second half.
Malacañang expressed confidence that the economy would have a “very strong rebound” after the reopening of the government’s massive infrastructure program.
“The economic planners are very vigilant, we foresee a V-shape economic recovery, there will be a steep decline in the gross domestic product for the second quarter perhaps,” presidential spokesperson Harry Roque told a press briefing.
“But we expect a very strong rebound courtesy of the ‘Build, Build, Build’ program of the government, and very prudent fiscal policy as well as prudent monetary policy, which means we’re using public spending as a tool for economic recovery and we’re also using money supply as a tool also for economic recovery,” he said.
Roque described the first quarter GDP decline as a “minimal contraction” and expressed confidence that the economy will recover as it has “very sound fundamentals.”
He said the government expected a deeper contraction for April because of the lockdown imposed to halt the spread of the new coronavirus. But he added that the government did not expect the country to slip into recession but instead rise on the V-strategy by the third quarter.
‘Still respectable’
The January eruption of Taal Volcano, which forced the temporary closure of the country’s main international airport in Manila, also took a toll on the economy during the first quarter.
“The first quarter, I think, is still respectable given the very difficult environment that we are in,” Chua told a press conference. “The second quarter might be worse.”
He said the lockdown imposed in mid-March halted 70 percent of economic activities, but added that the first quarter result, compared with other countries, still placed the Philippines “in a better footing.”
“In the second quarter, we know that April will be very bad because of the [lockdown]. But we also know that starting May, two-thirds of the country have been put under [lighter quarantine rules]. That is basically light that we are seeing at the end of the tunnel,” Chua said.
Growth in consumer spending, which is the Philippines’ key economic driver, slowed to just 0.2 percent during the period, hit by the closure of shopping malls and other shopping centers in areas under lockdown.
National Statistician Claire Dennis Mapa said the last time GDP contracted was in the fourth quarter of 1998, by 3 percent, sinking the economy by 0.5 percent for that entire year as the Philippines reeled from the Asian financial crisis and from a dry spell caused by El Niño.
Pernia ‘somewhat surprised’
Chua’s predecessor, Ernesto Pernia, who still headed the National Economic and Development Authority during the first quarter, told the Inquirer that he was “somewhat surprised” at the first quarter result, which he said he had expected to be a growth of 1.5 percent.
According to the Philippine Statistics Authority, the agriculture sector shrank 0.4 percent and industry contracted by 3 percent during the first quarter.
Gov’t spending
Services managed to grow by 1.4 percent, although this is slower than its 7.1-percent expansion a year ago. As such, the 0.8 percentage point (ppt) contribution to GDP growth of service in the first quarter was offset by industry’s negative 0.9 ppt, and agriculture’s minus 0.04 ppt.
Government spending on public goods and services grew 7.1 percent during the first quarter thanks to the on-time approval of the P4.1-trillion national budget for 2020, although this was a slower increase compared with the preceding quarter’s 17-percent jump in government consumption.
Household consumption grew by only 0.2 percent, down from 5.7 percent during the fourth quarter of 2019, which was boosted by the Filipinos’ Christmas spending.
Strong chance for recovery
Last month, the Development Budget Coordination Committee (DBCC) projected zero GDP growth at best or a contraction by 0.8 to 1 percent at worst in 2020.Chua said the government’s economic team would stick with the DBCC’s preliminary projection in the meantime. “With the progress that we are seeing on the health side, there is a very strong chance that we will have a good recovery,” he said.
But private economists have a less rosy outlook of the Philippine economy, with London-based Capital Economics further downgrading its 2020 GDP forecast for the country to 6-percent contraction from 4 percent, and Dutch financial giant ING now projecting the Philippine economy to shrink by 2.9 percent for the entire year instead of its earlier forecast of 2.2 percent. —WITH REPORTS FROM JULIE M. AURELIO AND AFP