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Virus ends 21-year growth streak

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A soldier guards an empty street following the lockdown imposed to contain the coronavirus disease 2019 (COVID-19) in Manila, April 24. -- REUTERS

THE Philippine economy unexpectedly shrank in the first quarter, as strict lockdown measures aimed at containing the coronavirus outbreak brought economic activity to a near standstill, the Philippine Statistics Authority (PSA) reported on Thursday.

Gross domestic product quarterly performance (Q1 2020)

Using the new base year of 2018, gross domestic product (GDP) contracted 0.2% in January to March, ending 84 quarters or 21 years of uninterrupted growth.

The last time GDP fell into negative territory was in the fourth quarter of 1998, when the economy contracted by 3% amid the Asian financial crisis.

The first-quarter result was a reversal from the 6.7% and 5.7% growth recorded in the previous quarter and in the first quarter of 2019, respectively. It was also worse than the 2.9% median estimate in a BusinessWorld poll of 11 economists conducted last week.

However, this was still within the Cabinet-level Development Budget Coordination Committee’s projection last month that the economy could contract by 0.8% or post zero growth this year.

“Our country has faced significant socio-economic risks and shocks during the first quarter of 2020, all totally unexpected: the Taal Volcano eruption in January; a significant decline in tourism and trade starting in February due to the COVID-19 pandemic; and the need to implement the enhanced community quarantine (ECQ) in Luzon and other parts of the country starting March,” National Economic and Development Authority (NEDA) Acting Secretary Karl Kendrick T. Chua said in yesterday’s news briefing.

Mr. Chua acknowledged that containing the spread of COVID-19 through the ECQ “has come at great cost to the Philippine economy,” but added that the government’s priority is “to protect lives and health of our people.”

In mid-March, the government placed Luzon, which accounts for over 70% of GDP, under an ECQ that halted nearly all economic activity and domestic consumption.

The first-quarter result provided a detailed look into the damage caused so far by the coronavirus on the economy.

Among major economic sectors, agriculture and industry posted declines of 0.4% and 3% in the first quarter, a turnaround from their respective growth rates of 0.5% and 4.9% in the same quarter last year.

Bucking the trend was services, which grew 1.4% in the first quarter. This was, however, slower than last year’s 7.1%.

On the expenditure side, household spending recorded 0.2% growth, slower than 6.2% in the first quarter of 2019.

Government spending grew by 7.1%, slower than the 17% growth in the previous quarter, but faster than 6.4% in the first quarter of 2019.

Private investment, which is represented in the data as capital formation, posted an 18.3% decline compared to a 9.8% expansion in the same three months last year.

Exports and imports of goods and services also contracted to three percent and nine percent, reversing from their respective growth rates of 4.2% and 8.9% last year.

Gross national income — the sum of the nation’s GDP and net income received from overseas — posted a 0.6% decline in the first quarter compared to growth rates of 5.8% in the previous quarter and 5% in 2019’s comparable three months.

“Data from [the first quarter] show the lockdown had indeed severe economic consequences: private consumption expanded at its slowest pace in at least 20 years, while fixed investment contracted from the previous year. These two components have been the main drivers of growth in the Philippines for the past 10 years,” HSBC Global Research Economist Noelan C. Arbis said in a note to reporters.

“GDP data by sector were similarly dire, with agriculture and industrial activity both declining from the previous year, while services activity expanded at its slowest pace in at least 20 years as well,” he added.

DEEPER CONTRACTION SEEN
The worst may be yet to come in the second quarter, as the Luzon lockdown continued throughout April. Since May 1, some low-risk areas have been downgraded to a general community quarantine (GCQ) that allowed a gradual resumption of work and economic activity. However, Metro Manila and other high-risk areas remain under ECQ until May 15.

The number of COVID-19 cases in the country reached 10,343, with 685 deaths and 1,618 recoveries, the Health department reported on Thursday.

A recession appears likely as Mr. Chua said the second-quarter GDP result “might be worse.”

However, he pointed out that many areas have gradually transitioned into a GQC.

“[T]he main difference is in the ECQ, the maximum number of people that can really work and the maximum value-added that the economy can operate is… closer to 25%. Under the GCQ it is closer to 75%. So, what this means is that there is a chance that we minimize the contraction [in the second quarter]…,” Mr. Chua said.

“[W]e are using our policies to proactively manage our trajectory, so that by the second half, we can recover gradually.”

Finance Secretary Carlos G. Dominguez III expects the economy to bounce back in the second half, on the back of government plans to accelerate infrastructure spending, implement social programs and other measures in order to restore consumer confidence. However, he noted this would depend on the availability of a COVID-19 cure and if the pandemic will be under control at that time.

“[The] [g]overnment plans to restart the domestic economy soon enough would have to be balanced with relaxing mobility restrictions in such a way as not to trigger an infection resurge that could lead us back to square one,” Mr. Dominguez said in a statement.

Bangko Sentral ng Pilipinas Governor Benjamin E. Diokno also expressed disappointment with the first-quarter results.

“But there could be a strong bounce back by 4th quarter, so there’s hope that we may not be in a recession this year,” he said in a separate virtual meeting on Thursday.

For ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa: “[T]he current lockdown which spans almost a full two months of [the second quarter] will undoubtedly drag GDP deep into contraction as we see how destructive the ECQ can be for the consumption-driven economy. The [first-quarter] GDP report moves us to downgrade our current -2.2% full-year growth forecast to -2.9% for the year,” he said in a note.

In a separate note, Capital Economics’ Emerging Markets Economist Alex Holmes said the lockdown had a severe impact on Philippine economic activity.

“(Philippine) growth is likely to be even worse than we feared in 2020. We are downgrading our forecast from -4% to -6%,” he said.

In a Viber message sent to reporters, Albay Rep. and House Ways and Means Committee Chairman Jose Maria Clemente S. Salceda said the first-quarter result shows that “this crisis is unprecedented, and will require similarly unprecedented action.”

“Congress will work hand in hand with the executive to get an economic stimulus and recovery plan passed, hopefully in a matter of weeks. Consumer and business confidence will be key, so government action must inspire confidence in the people,” Mr. Salceda said. — Lourdes O. Pilar with inputs from Genshen L. Espedido, Beatrice M. Laforga, and Luz Wendy T. Noble





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