By Luz Wendy T. Noble
Reporter

THE Philippine economy would probably shrink by 0.2% this year, central bank Governor Benjamin E. Diokno said at the weekend, a day after President Rodrigo R. Duterte again extended the lockdown for Metro Manila by two more weeks to contain a novel coronavirus pandemic.

“On an annual basis, the gross domestic product is expected to shrink by 0.2% in 2020,” he told reporters in a Viber message on Saturday. He added that the economy was likely to bounce back to about 7.7% growth next year “as the impact of the government policy gains traction.”

Mr. Diokno said the economy probably slowed in the first quarter and would contract in the next two quarters before recovering in the last quarter.

Finance Secretary Carlos G. Dominguez III earlier said the economy could shrink by as much as 1% this year.

Before the global pandemic, the government had targeted 6.5%-7.5% growth this year after a revised 6% advance in 2019.

Mr. Diokno said the Philippines was in a better position “unlike most emerging economies” despite the looming risks of recession.

He added that the country was not at risk of a debt default because of the health crisis. “The Philippines is one of the few developing countries that can borrow from multilateral institutions at largely concessional rates,” he added.

Inflation would also probably slow this year, Mr. Diokno said. “Bangko Sentral ng Pilipinas (BSP) forecasts that inflation will average at the low end of the target range at 2% in 2020, down from the previous forecast of 2.2%,” he said.

He added that the major downside risks to inflation are the decline in prices of global crude and non-oil products and the impact of COVID-19 on both global and domestic growth.

Inflation in 2021 is expected at 2.45%, slightly higher than the previous forecast of 2.4%, with BSP taking into account “strong recovery in domestic activity and higher liquidity growth,” Mr. Diokno said.

Inflation averaged 2.7% in the first three months of the year. Inflation in March eased further to 2.5% from 2.6% in February and 3.3% a year earlier.

The economic contraction could be the worst in the second quarter after Mr. Duterte locked down the entire Luzon island starting on March 17, Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said in a mobile phone message.

Mr. Duterte extended the enhanced community quarantine twice — first until April 30 for the island and then until May 15 for Metro Manila and nearby cities.

The economy could still shrink in the third quarter “but by a lesser extent assuming there is already some easing of the lockdown and some gradual re-opening of the economy,” he said.

Ruben Carlo O. Asuncion, chief economist at UnionBank of the Philippines, Inc. said the economy might start recovering in the third quarter.

“Critical to this possible scenario is the consumption recovery and investment growth,” he said in a text message.

Mr. Ricafort said the economic outlook for the last quarter may be better assuming the coronavirus disease 2019 (COVID-19) will have been better contained by then.

“Christmas season will also help spur greater economic activities in Q4, as well as the greater effects of the stimulus measures and monetary policy easing to stimulate the economy,” he added.

Mr. Diokno expects foreign direct investments (FDI) to be hit as coronavirus worries cloud investor sentiment.

“The COVID-19 pandemic is seen to significantly but temporarily dampen foreign investment flows in the country in 2020,” Mr. Diokno said in a text message on Sunday.

“Nonetheless, resurgence is expected as soon as concerns on the pandemic dissipate and quarantines are lifted,” he added.

FDI inflows dropped by 23.1% from a year earlier to $7.647 billion last year, according to Bangko Sentral ng Pilipinas (BSP) data.

Before the pandemic, analysts had cited regulatory risks and the vagueness of the local tax reform program as factors for declining FDI flows.

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