THE recovery will start picking up in the fourth quarter, helping mitigate the damage done by the pandemic and leading to a 2020 contraction in gross domestic product (GDP) to as much as 8.5%, according to First Metro Investment Corp. (FMIC) and University of Asia and the Pacific (UA&P).

“Although the deep dive in Q2 which impacts also Q3, suggests (a decline in) full-year GDP (of) 6.5% to 8.5%, we expect a more positive outlook for Q4 with the Philippine economy slowly recovering and milder restrictions in place starting September,” FMIC and UA&P said in the September issue of their joint “Market Call” report.

The economy contracted by a record 16.5% in the second quarter after a minus-0.7% performance in the first three months.

The strictest form of the lockdown was imposed between mid-March and May. Restrictions have been eased since but safety protocols remain and low consumer confidence continues to dampen business activity.

FMIC and UA&P said early signs of a “mild” recovery started showing up in late August with the release of improved economic data on employment, inflation and remittances.

Unemployment declined to 10% in July from a record 17.7% in April, while inflation eased to a three-month low of 2.4% in August.

OFW remittances posted a second month of growth in July to $2.783 billion, up 7.8% year on year.

“A slew of recently released economic data, including job recovery, slower inflation, sustained growth in OFW remittances and milder quarantine restrictions starting Sept. 1 have raised hopes of faster economic recovery by Q4,” according to the report.

It said sustained government spending has also helped stimulate the economy. Spending rose 0.38% to P283.3 billion in August, against a 10% year-on-year uptick in July.

“The national government shall ramp up spending, especially on infrastructure and health facilities, to inject vitality into the weakened economy,” it said.

The report projected “more jobs recovery and growth in OFW remittances” in the coming months as the economy reopens further.

FMIC and UA&P said inflation might have peaked at 2.7% in July and will likely average 2.4% by years’ end, well within the 2-4% target range set by the central bank.

Economic managers expect 2020 GDP to decline 4.5%-6.6% this year.

The World Bank on Tuesday slashed its outlook to minus 6.9% from the minus 1.9% baseline estimate it gave in June.

The Asian Development Bank also trimmed its forecast to minus 7.3% from a minus 3.8% forecast in June, while the ASEAN+3 Macroeconomic Research Office cut its estimate to minus 7.6% from minus 6.6% previously.

S&P Global Ratings, Fitch Ratings and Moody’s Investors Service also downgraded their 2020 GDP forecasts to minus 9.5%, minus 8% and minus 7%, respectively. — Beatrice M. Laforga

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