By Luz Wendy T. Noble, Reporter

HOUSEHOLD spending remains weak as uncertainty over the coronavirus disease 2019 (COVID-19) continues to weigh on consumer sentiment, Bangko Sentral ng Pilipinas Governor Benjamin E. Diokno said on Monday.

“We will see a significant bulk of consumers holding back on their consumption,” Mr. Diokno said in a virtual briefing at Malacañang.

“With household consumption and balance sheets adversely affected alongside precautionary behavior amid continued uncertainty and fear of contagion, this will further dent consumption and investment and ultimately economic growth,” he added.

Consumption is the main driver of the country’s economy, making up 70% of the gross domestic product (GDP). Disruptions caused by the Taal Volcano eruption and the Luzon-wide lockdown led to a 0.2% GDP contraction in the first quarter.

Mr. Diokno warned the second-quarter contraction will be worse, as the quarantine measures continued throughout the period.

“Without doubt, the downturn in the second quarter of 2020 will be deeper as the extension of the lockdown further dampens domestic demand and lowers production activity,” he said.

The central bank chief reiterated the economy needs to be reopened with health standards in place to further curb the spread of COVID-19.

Mr. Diokno earlier said he expects the third quarter to still be in contraction, albeit less than the second quarter as business operations gradually resume.

The government projects the economy to shrink by 2-3.4% this year.

While the central bank’s easing measures are meant to support market and consumer confidence, Mr. Diokno reiterated that fiscal policy will drive economic recovery.

The Monetary Board in June has slashed overnight reverse repurchase rate, lending, and deposit facilities by 50 basis points to record lows of 2.25%, 2.75%, and 1.75%, respectively.

However, Mr. Diokno stressed the “need for substantial targeted economic policies with fiscal policy at the frontline and monetary policy playing a supporting role.”

He said consumers and businesses should take advantage of the low interest rate environment.

Kailangan nating i-open up ’yung economy kasi as long as we’re afraid to consume, to buy, afraid to invest, afraid to produce, walang mangyayari sa ekonomiya natin (We need to open up the economy because as long as we’re afraid to consume, buy, invest, produce, nothing will happen to the economy),” the BSP chief said.

Ateneo de Manila University professor Alvin P. Ang said the monetary policies are meant to support fiscal policies that are much needed at this point. He said the record low rates will have a bigger impact on formal borrowers and lenders.

“[Y]ou may have to continue to give people income support and firms some subsidy to pay for their dues. The virus limits movement and even if there is a good idea out there, there might be no buyers since people are staying home or have not enough income,” he said in a text message.

For Mr. Ang, marginalized Filipinos will only feel the impact of the BSP’s aggressive monetary stance “if the goods and services prices fall and it creates jobs.”

Meanwhile, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said the impact of the BSP’s move to Filipino consumption would be hard to gauge for people with no access to financial institutions.

“This is why a national ID could have been a game-changer. But for some that have access, low interest rates are enticing and can encourage consumption,” Mr. Asuncion said in a text message.

On the fiscal side, Mr. Asuncion said the P1.3-trillion stimulus package of the ARISE (Accelerated Recovery and Investments Stimulus for the Economy) bill would do more than enough to help the economy recover.

The bill, which is still pending in Congress, allocates P110 billion for wage subsidies, P50 billion for loans to small businesses, and P58 billion for tourism, among others.