By National Economic and Development Authority, January 28, 2021; National Economic and Development Authority
With economic performance continuing to improve from the peak of the quarantines in the second quarter to the last quarter of 2020, the outlook for 2021 is better. However, the recovery hinges on effective management of COVID-19 risks, a calibrated reopening of the economy, roll-out of the vaccine, and the speedy passage of key reforms, the National Economic and Development Authority (NEDA) said.
The Philippine Statistics Authority reported today that the Philippine economy contracted by 8.3 percent in the fourth quarter of 2020.
This brings the 2020 full-year gross domestic product (GDP) contraction to 9.5 percent, which is at the low end of the -8.5 to -9.5 percent estimate of the Development Budget and Coordination Committee (DBCC). On a quarter-on-quarter basis, the economy grew by 5.6 percent. This is a welcome development from the 16.9 percent and 11.4 percent contractions recorded for Q2 and Q3, respectively.
“The prospects for 2021 are encouraging. With the continuous calibrated reopening of businesses, mass transportation, and the relaxation of age group restrictions, we will see the return of more economic activity in the months ahead,” said Acting Socioeconomic Planning Secretary Karl Kendrick T. Chua during the Philippine Statistics Authority’s press conference on the 2020 Fourth Quarter Performance of the Philippine Economy.
“This will lead to a strong recovery before the end of the year, when the government will have rolled out enough vaccines against COVID-19 for a majority of our people,” he added.
Chua also said that this improvement was the result of the further reopening of businesses and wider accessibility of public transport since October 2020. However, it also hints at the limits of economic recovery without any major relaxation of our quarantine policy.
On the demand side, private consumption, which comprises some 70 percent of the GDP, remained weak with -7.2 percent growth. While the government relaxed the restrictions on the supply side, restrictions on the demand side – notably on the mobility of children and families – prevented private consumption from making a strong comeback.
NEDA estimates that quarantine restrictions may have reduced household spending by PHP 801 billion in 2020 or an average of around PHP 2.2 billion per day. This translates to a total income loss of around PHP 1.04 trillion in 2020 or an average of PHP 2.8 billion per day.
Meanwhile, government consumption grew by 4.4 percent, despite the high base in 2019. As of December 31, 2020, PHP 109 billion have been released under Bayanihan II.
On the supply side, further opening of the economy led to smaller contractions in industry, manufacturing, and services growth. The performance of the agriculture sector, however, contracted by 2.5 percent due to a series of typhoons, flooding and the African Swine Fever (ASF).
To further ensure the safety of our citizens, the government has allocated PHP 72.5 billion this year to provide vaccines to at least 50 million Filipinos. The efficient and immediate rollout of the vaccine against COVID-19 will further help in safely opening the economy, as well as restore and create new jobs.
Alongside the prospects for a mass vaccination program, the higher government spending through the Bayanihan II and the 2020 and 2021 budgets, as well as the swift congressional approval of our key legislative bills would underpin economic recovery in the years ahead.
“The speedy implementation of Bayanihan II, coupled with the extension of Bayanihan II to June 30, 2021 and the 2020 budget to December 31, 2021 will allow the government to spend some PHP 195.3 billion more in 2021. This translates to additional fiscal stimulus of around one percent of GDP in 2021,” Chua explained.
Other measures that will help the country’s recovery momentum are the Financial Institutions Strategic Transfer (FIST) Act, the Government Financial Institutions’ Unified Initiatives to Distressed Enterprises for Economic Recovery (GUIDE) Act, and the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act.
Congress could help ensure the long-term recovery of the economy by passing not only our key economic bills but other pending measures that are immediately doable to attract foreign direct investments and create more and better jobs.
Chua urged legislators to swiftly pass the amendments to the Public Service Act, the Retail Trade Liberalization Act, and the Foreign Investment Act to rev up the Philippine economy and sustain its recovery. These measures complement other reforms that the government has already done, such as the Build, Build, Build infrastructure program, the Rice Tariffication Law, and the Ease of Doing Business Act.
The NEDA chief reiterated that our experience in 2020 shows that the economy is strong enough to recover if we enable it to do so. However, prolonging the status quo of community quarantine and risk aversion is not an option. Proactively managing the risks and striking a better balance between protecting the people from COVID-19 and non-COVID-19 problems is the only way to go.
“The government is committed to deliver adequate, prudent, and timely policies and responses to help restore income opportunities and jobs. We assure the Filipino people we will not waste this crisis. Like before, we will turn this crisis into an opportunity to recover strongly, and collectively build a better normal and a more inclusive society for many years ahead,” Chua said.