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Philippines faces bumpy economic recovery

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A crane stacks shipping containers at the international container port in Manila. -- AFP

By Luz Wendy T. Noble and Beatrice M. Laforga, Reporters

The Philippine economy could shrink by as much as 3.1% this year after months of quarantine that is one of the strictest and longest in the world, amid a surge in coronavirus infections, according to Moody’s Analytics.

The Southeast Asian country would probably be left behind by its peers in the Asia-Pacific region in terms of recovery, Steve Cochrane, chief economist in the region at Moody’s Analytics, said in a report on Friday.

The projection is worse than Moody’s 1.8% contraction estimate last month and 6.9% growth forecast in January before the pandemic.

The new forecast considered the extension of various levels of lockdown in many parts of the country that caused longer-than-expected economic disruptions, Mr. Cochrane said in an e-mailed reply to questions.

President Rodrigo R. Duterte locked down the entire Luzon island in mid-March, suspending work, classes and public transportation to contain the pandemic. The lockdown in most parts of the country had been eased, with more businesses allowed to reopen with minimal workforce.

Mr. Cochrane said the “very sharp” drop in exports could aggravate the situation.

“On a three-month moving average basis, exports are down by over 35% on a year-to-year basis as of May,” he said. “This is the sharpest downturn across the Asia-Pacific region and matched only by India’s downturn in exports.”

The Philippines will be an exception to the gradual recovery that the rest of the region will experience from July to September, Mr. Cochrane said in the report.

“All countries within the APAC region are expected to enjoy a positive economic bounce in the third quarter except for the Philippines, which has suffered the longest and strictest lockdown in the region and whose count of COVID-19 cases has accelerated this month,” he said.

Local coronavirus infections topped 76,000 on Friday, with almost 1,900 deaths, the Health department said.

International travel and tourism across the region would be the slowest to recover as restrictions are extended up to next year, Mr. Cochrane said.

“This is significant for the small open economies of Hong Kong and Singapore, and for tourism-dependent economies such as Malaysia, New Zealand, the Philippines, Thailand and Vietnam,” he said.

He added that the Philippines and Indonesia would remain laggards given their “tepid fiscal support.”

“The most important policy moves will be to bring the spread of COVID-19 under control and reduce the number of new cases on a sustained basis,” he said. “Only then can the government broadly open up the economy once again.”

Moody’s also expects a slower recovery for the Philippines next year, at 5.2% growth from a previous 6.2% estimate.

The lockdown will hurt household spending, which makes up about three-quarters of the economy, Mr. Cochrane said. “Households will work to replenish depleted savings rather than spend on goods and services that are not essential.”

OUT OF THE HOLE

Meanwhile, the Philippine economy faces a long and bumpy recovery after it slips into a recession this year, Nicholas Antonio T. Mapa, a senior economist at ING Bank NV Manila Branch, said at an online briefing on Friday.

It might take years before it bounces back to pre-pandemic growth levels of 6%, he added.

Economic output is expected to shrink for the rest of the year after a 0.2% contraction in the three months through March. The slump is expected to have worsened in the second quarter, when much of the country was locked down.

Mr. Mapa said gross domestic product might have slumped by 6.3% in the second quarter, signaling the start of a recession as consumption, the backbone of the Philippine economy, was “knocked out.”

He said economic output would continue to shrink by 5.8% in the third quarter and by 3.5% in the three months through December.

He said the economy would probably grow by 3.5%, 5.7%, 5.8% and 4.5% in the four quarters of next year, and by 5.2%, 4.3%, 4.2% and 5.1% in the four quarters of 2022.

“After we get out of that hole that we crash-landed onto, it might take longer to get back to that 6% trajectory,” he said.

Economic growth has largely been anchored on robust consumer spending, backed by strong job market expectations, remittances from workers overseas and confidence from both consumers and investors before the pandemic, Mr. Mapa said.

Economic managers expect the economy to shrink by 2-3.4% this year and bounce back to 8-9% growth next year.

A strong recovery next year is possible if the government can bring back consumer confidence to its pre-coronavirus levels, Mr. Mapa said.

“There’s only one sector that could really spend to augment all of these right now and it’s the government,” he said, adding that “growth prospects depend largely on the fiscal response.”





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