By Melissa Luz Lopez, August 6, 2020; CNN Philippines
Metro Manila (CNN Philippines, August 6) — The full weight of lockdowns due to the COVID-19 pandemic pushed the economy over the edge, recording a sharp fall in activity during the second quarter.
The economy shrank by 16.5 percent in April-June compared to last year, the Philippine Statistics Authority said Thursday. This captures two full months of Luzon under lockdown, particularly in Metro Manila which serves as the country’s main business hub.
This also follows a 0.7 percent contraction in the first quarter — which was deeper than what was initially reported — and confirms that the Philippines is in recession amid the global health crisis.
The plunge is likewise the steepest since available records in 1981 under the last few years of the Marcos era, and reverses the 5.4 percent growth logged during the second quarter of 2019. Prior to this, the worst on record was a 10.7 percent slide in the third quarter of 1984.
In the first half of the year, the economy collapsed by 9 percent, National Statistician Dennis Mapa said in a briefing. Finance Secretary Carlos Dominguez III separately said in that briefing that the slump would have been deeper at 11.5 percent for the semester if the government did not boost spending.
Government spending was the only segment which substantially grew year-on-year. Household consumption – the backbone of the economy – emerged as the biggest dampener as lockdowns kept people at home and spent less.
The steep decline in domestic activity forced President Rodrigo Duterte’s economic team to revise their forecast for the full year 2020 to a 5.5 percent contraction, wider than the 2.0-3.4 percent drop they projected back in May.
The entire Luzon and select provinces were placed under enhanced community quarantine for April and the first two weeks of May, until restrictions were gradually eased to allow more businesses to reopen.
Compared to the first quarter, the second-quarter gross domestic product was lower by 15.2 percent, the government data showed.
Only the agriculture sector – long known as a laggard among industries – managed to grow by 1.6 percent in terms of output, against steep falls in industry (22.9 percent) and services (15.8 percent).
Firms under the financial and insurance sector, public administration and defense as well as compulsory social security, and information and communication also grew during the quarter amid increased demand.
On the other hand, the manufacturing sector tallied the biggest decline, followed by construction and transportation and storage.
June marked a relaxation of rules including in Metro Manila, with about 75 percent of local industries resuming business and more Filipinos returning to work.
The Philippines is in the “middle of the pack” when compared to countries with the same credit rating, as the finance secretary pointed out that the COVID-19 pandemic has driven numerous economies into recession. So far, the country’s second quarter slide is the worst when compared to neighboring Indonesia (-1.2 percent), Singapore (-6.5 percent), and Vietnam (2.1 percent).
The economic team is anticipating the passage of the ₱140-billion Bayanihan to Recover as One Act, saying it will help boost economic activity and provide help to the worst hit sectors, which in turn should usher in a rebound to growth come 2021.
Bangko Sentral ng Pilipinas Governor Benjamin Diokno said separately that “the worst is behind us,” with economic performance seen to be better in the last two quarters of the year. The team sees a recovery to a 6.5-7.5 growth for 2021 and 2022.
For his part, Bank of the Philippine Islands lead economist Jun Neri said the country’s economy might have already experienced its worst as it transitions to the new normal.
“We are quite hopeful that we have already hit bottom, and the reason for this is we have learned things about the treatment, how to improve the transport system, as well as technology,” he told CNN Philippines. “We’ve been able to use technology better as an economy.”
But not all market watchers are as optimistic.
“With record-high unemployment expected to climb in the coming months we do not expect a quick turnaround in consumption behavior, all the more with COVID-19 cases still on the rise,” ING Bank senior economist in the Philippines Nicholas Antonio Mapa said in a report, keeping his forecast between 3.5-4.5 percent.
IBON Foundation also pointed out that the Duterte government’s COVID-19 response is the worst in the region, which also ate into economic prospects.