Philippines remains in recession as GDP shrinks 4.2% in Q1

THE PHILIPPINE economy contracted more than expected in the first quarter, extending the  recession to five straight quarters as the pandemic dragged on, data from the Philippine Statistics Authority (PSA) showed on Tuesday.

The country’s gross domestic product (GDP) fell by an annual 4.2% in the quarter ending March, worse than the median decline of 2.6% in a BusinessWorld poll last week.

This marked five consecutive quarters of GDP decline, marking the longest recession since the Marcos era when economic output shrank for nine consecutive quarters from the fourth quarter of 1983 to the fourth quarter of 1985.

However, first-quarter GDP appeared to show signs of a slow recovery, as it grew 0.3% on a seasonally adjusted basis from the fourth quarter of 2020.

By expenditure share, government spending was the sole component that managed to post an annual growth rate in the first quarter with 16.1% — the fastest since the 21.8% growth in the second quarter of 2020. The latest reading was faster than the 5.1% and 7% logged in the previous quarter and the same period last year.

Household spending — which accounts for around three-fourths of GDP — dropped at a slower pace of 4.8% compared with the 7.3% fall in the fourth quarter of 2020. Still, it was a reversal from the 0.2% seen the first quarter of 2020. 

The investment component, which is represented in the data as capital formation, continued to slide in the first quarter with 18.3%. While faster than the 12.1% slump in the same period in 2020, it was slower compared with the declines in last year’s second quarter (-51.5%), third quarter (-39.5%), and fourth quarter (-32.2%). 

A similar trend is observed in trade during the period as exports of goods and services went down by 9% versus the contractions of 10.2% and 4.4% in the fourth quarter of 2020 and first quarter of 2020, respectively. Meanwhile, imports slipped  by 8.3% versus the 20.2% plunge in the previous three-month period and the 7.4% fall in the same period last year.

Agriculture, forestry, and fishing — which make up around a tenth of the country’s GDP — recorded the smallest annual decline in the first quarter with 1.2%. This was slower than the 2.5% decrease in the fourth quarter of 2020, but faster than the 0.3% dip in January-March 2020.

Services, which contribute around 60% of economic output, dropped by 4.4% in the first quarter. While this was slower compared with the 8% fall in the preceding quarter, this was a reversal of the 0.1% seen in the same period last year.

In a joint statement, Socioeconomic Planning Secretary Karl Kendrick T. Chua, Finance Secretary Carlos G. Dominguez III, and Budget and Management Secretary Wendel E. Avisado said the economy’s performance in the first quarter is “consistent with the recovery in the labor market.”

“The relaxation of quarantine restrictions while adhering to the minimum health standards enabled millions to regain their jobs and income sources in the first quarter. As of March 2021, we surpassed [pre-pandemic] employment by 2.8 million jobs, as the labor force participation rate improved to 65% and the unemployment rate fell to 7.1%, the lowest since the height of the pandemic,” the economic managers said. 

As coronavirus infections spiked in March, the government once again placed Metro Manila and the provinces of Bulacan, Cavite, Laguna, and Rizal under an enhanced community quarantine (ECQ) from March 29 to April 11. The areas are currently under a less restrictive modified ECQ until May 14.

Gross national income — the sum of the nation’s GDP and net income received from overseas — fell by 10.9% in the first quarter compared with a 1.6% contraction in 2020’s comparable three months.

OUTLOOK
The economic managers said the “improving economic data” in recent months, coupled with the country’s “strong economic position” prior to the pandemic “point to an economy that is on the mend.”

“While the past seven weeks of ECQ and MECQ in [Metro Manila and surrounding provinces] will pose downside risk to growth, our actions in the next eight months can reverse these initial losses,” they said.

They added the economy’s growth prospects is “underpinned by three important policy actions” which include the reopening of the economy; the full implementation of the government’s recovery package such as 2020 and 2021 General Appropriations Act, the Bayanihan to Recover as One Act (Republic Act 11494 or Bayanihan II), and the social amelioration program during the recent ECQ; and the acceleration of the mass vaccination program.

Economists are not as optimistic.

“Although we continue to expect [second-quarter] GDP to post growth on a [year-on-year] basis, we may have to trim our expectations especially if partial lockdowns are extended through May,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in a statement to reporters.

“Attention now shifts to the Bangko Sentral ng Pilipinas (BSP) policy meeting [tomorrow] with the central bank widely expected to hold policy rates unchanged,” he added.   

A separate BusinessWorld poll held last week showed 15 out of 17 analysts expect the BSP to maintain its overnight reverse repurchase rate or the key policy rate at a record low of 2%. Analysts said the scope for interest rate adjustment is limited as inflation continued to exceed the annual target and supply issues persist.

For UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion, economic recovery is going to be an “upward climb, but… not entirely impossible.”

“If and when the inoculation plans happen better-than-expected and consumer and business sentiments dramatically improve, a 6% economic growth is achievable,” he said in an e-mail.

Security Bank Corp. Chief Economist Robert Dan J. Roces expects a “gradual recovery” this year, albeit “fraught with uncertainties” as momentum may have been sapped due to rising COVID-19 cases and the resulting lockdowns.

“Using updated estimates, the Philippines may only return to pre-pandemic GDP levels in [second-half 2022] at the earliest,” Mr. Roces said in a Viber message.

Alex Holmes, economist at Capital Economics, said while new coronavirus cases seemed to have leveled off, the situation “remains dire.”

“Due to… [the] weaker-than-expected outturn and the continued spread of the virus, we are cutting our 2021 growth forecast from 7.5% to 6%. That would leave the economy nearly 13% below its pre-crisis trend by the end of the year,” he said in a statement.

“The weakness of the recovery means the [BSP] is likely to cut rates again later this year if, as we expect, inflation falls back within target,” he added.

ANZ Research Chief Economist for Southeast Asia and India Sanjay Mathur and economist Rini Sen noted clear policy implications from the latest GDP report. “Monetary accommodation albeit without further cuts will continue through the remainder of the year,” they said. — Ana Olivia A. Tirona