PH needs bigger fiscal support vs COVID-19, says think tank

There has been a small recovery in activity recently ... but activity is still very depressed and consumer behavior is unlikely to recover to normal anytime soon, given that new virus cases have not yet started to fall Capital Economics

The Philippines should step up fiscal support for COVID-19 response as it gradually opens the economy while cases remain relatively high, London-based Capital Economics said.

“The government in the Philippines this week passed a new fiscal stimulus package worth over 2 percent of GDP [gross domestic product], but with the large part of the economy still in lockdown and infections still rising, we think more fiscal support will be required,” Capital Economics said in a May 28 report titled “Some signs of recovery as lockdowns are eased,” referring to the stimulus bills passed by the Lower House.

After the economy contracted by 0.2 percent year-on-year in the first quarter, Capital Economics said the second quarter—with strict lockdowns in April and May—would likely be “much worse.”

“Virus containment measures were introduced in midmarch and are among the toughest in the region. Routing data from Apple Maps show journeys have been a fraction of the usual for over two months, suggesting activity is very depressed,” Capital Economics said.

“There has been a small recovery in activity most recently. This is mirrored in Google’s community mobility reports which suggest some people have returned to work as lockdown restrictions have been eased. That said, activity is still very depressed and consumer behavior is unlikely to recover to normal anytime soon, especially given that new virus cases have not yet started to fall,” Capital Economics added.

Besides infusion of more government support into the fiscal space amid expectations of increased spending to defeat the COVID-19 crisis, Capital Economics said monetary authorities might have to again step in.

“Given the dreadful outlook for growth, the Bangko Sentral ng Pilipinas is likely to step up support by cutting its policy rate further in the coming months. The BSP last cut its policy rate to 2.75 percent at an emergency meeting on April 16. Inflation should be no barrier to looser policy. While the headline rate has been slower to fall than elsewhere due to higher food price inflation, it is still close to the bottom of the BSP’S target band,” Capital Economics said.