Q2 GDP contraction seen deeper

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Most businesses were shuttered during the second quarter, as the government implemented one of the strictest lockdowns in the world to contain the coronavirus pandemic. — REUTERS

THE PHILIPPINE ECONOMY is widely expected to have declined much faster in the second quarter compared with the previous quarter, according to economists.

A BusinessWorld poll of 17 economists yielded a median decline of 11% in the second-quarter gross domestic product (GDP), falling further from the 0.2% drop in the first quarter and a reversal of the 5.4% growth in the second quarter of 2019.

This would bring the GDP decline to 5.6% in the first half, exceeding the government’s expectation of a 2%-3.4% slump this year. Moreover, the second-quarter median estimate would be the largest in more than 35 years or since the 10.7% contraction in the third quarter of 1984.

The Philippine Statistics Authority will report the official second-quarter GDP data on Thursday, a day after the release of it’s second-quarter data on farm production, which has historically contributed nearly a tenth to GDP.

In a June 11 Palace briefing, National Economic and Development Authority (NEDA) acting Secretary Karl Kendrick T. Chua said the second-quarter performance would be worse than the 0.2% contraction in the first quarter, as Luzon and other parts of the country were under a strict lockdown in April and May.

The Cabinet-level Development Budget Coordination Committee expects GDP to shrink by 2% to 3.4% this year, lower than the 1% contraction to zero growth forecast made in March.

Economists polled by BusinessWorld were unanimous in attributing the widely expected slump in second-quarter GDP to the prolonged lockdown.

“The stringent and prolonged lockdown led to a collapse in consumption and investment spending,” Makoto Tsuchiya, an economist from Oxford Economics, said in an e-mail.

“Surging unemployment and falling remittances compounded the downside pressures on household spending, while delays in construction activities and plunging business investment acted as significant drags on spending (despite supportive government spending),” he added.

“Overall, we expect the slump in domestic demand to have far outweighed the improved contribution from net exports in the second quarter,” he said.

Continuum Economics economist Jessie Lu pointed to the broad-based weakness in various components of GDP in April to June.

“Government spending has been a silver lining amid the COVID-19 (coronavirus disease 2019) gloom… expanding at an average of 40% year on year in [the second quarter], on the back of various fiscal measures to support the economy,” Ms. Lu said.

Treasury data showed state spending stood at P1.16 trillion in the second quarter, 43.4% higher than P812.2 billion in the same period in 2019. For the first half, expenditures went up 26.6% to P2.014 trillion, but still short of the P2.203-trillion target.

ANZ Research Economist Kanika Bhatnagar said the maximum impact of the lockdown restrictions on the economy would be on private consumption and investment.

“Validating our view is the performance of high-frequency indicators. Net sales declined 48.9% (on average) in April-May whereas cement production and capital goods imports, both indicators of investment activity, fell by more than 20% year on year. A higher contribution from net exports would have provided some support,” Ms. Bhatnagar said. 

President Rodrigo R. Duterte locked down the main island of Luzon in mid-March, suspending work, classes, and public transportation to contain the COVID-19 virus. People should stay home except to buy food and other basic goods, he said.

He extended the lockdown — one of the strictest and longest in the world — for the island twice and thrice for the capital region. The lockdown in Metro Manila has since been eased, with more businesses allowed to reopen with a skeletal workforce. Mass gatherings remained banned.

The government announced new quarantine levels starting July 16 when most areas were placed under a “modified general community quarantine” provided they impose strict zoning.

OUTLOOK
While economists agree on their expectations for the second quarter, the same could not be said for the third quarter and the rest of the year.

“With the recent calibrated reopening of some business activities, we think that contractions will ease by [the third quarter] until the end of the year,” Security Bank Corp. Chief Economist Robert Dan J. Roces said.

“Confidence levels remain low, however, and there exists uncertainty as regards the availability of a vaccine and until a targeted fiscal stimulus measure is implemented. Moreover, the external environment remains challenged by the ongoing pandemic, thus we expect a gradual pace of economic recovery,” he added.

“I expect GDP to remain in contraction for the balance of the year with growth only returning in 2021, mainly due to base effects,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa.

“Returning to the 6% growth trajectory of old would only be achieved if consumption gets into high gear and investments enjoy a resurgence, on the back of the Filipino consumer. Unless we see the malls brimming with shoppers, gridlock traffic, and airports overcrowded with tourists, we can be sure discretionary spending is not at where we need it to be,” he said.

Michael L. Ricafort, chief economist at the Rizal Commercial Banking Corp., said the economy may have already seen the worst with the lockdowns having been eased since June.

“However, social-distancing and other stringent measures to prevent new COVID-19 infections could slow down the economic recovery, especially given the recent spike in new cases and some risk of reverting some areas… back to lockdowns that could potentially slow down or even stall economic recovery prospects,” he said.

Medical frontliners on Saturday called on the government to once again implement strict lockdowns, warning of a collapse of the healthcare system as infections continued to soar.

Coronavirus cases in the country breached the 100,000 mark on Sunday. The Health department reported 5,032 additional infections, bringing the total to 103,185. The death toll stood at 2,059, while recoveries were at 65,557. — M. A. P. Soliman

Q2 2020 GDP growth forecast





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