Deeper contraction widely seen in Q2
The economy may contract further in the second quarter due to the coronavirus disease 209 or COVID-19 outbreak, according to Finance Secretary Carlos Dominguez.
In a statement, Dominguez said the economy may head deeper into the negative territory in the second quarter after contracting by 0.2 percent in the first quarter.
Dominguez, however, said the economy is expected to rebound in the second semester of 2020 on the back of government-led plans to accelerate public spending on infrastructure and social programs as well as other measures to restore consumer confidence and induce quick economic recovery.
However, the finance chief said economic improvement and the government’s bounce back plan would be contingent on whether the curve has been flattened and an effective cure or vaccine has been released by then.
The Philippine Statistics Authority (PSA) reported yesterday that the economy contracted by 0.2 percent in the first quarter. This is the first time the economy registered negative growth since the fourth quarter of 1998.
Dominguez said the negative first quarter performance was an “inevitable outcome” of COVID-19’s initial impact on the global economy at the onset of 2020.
“The outbreak of this lethal virus, which subsequently froze economies and shuttered businesses in the four corners of the world, started to take its toll on the domestic economy in February as the lockdown in China caused supply chain disruptions and stopped arrivals of Chinese tourists, hence adversely affecting Philippine trade and tourism,” he said.
According to the finance chief, the Bureau of Customs (BOC) reported a decline in the country’s trade volume with China as early as February. He said the number of cargo containers imported from China in the first half of the month fell by 62 percent year-on-year.
Dominguez said the tourism sector also took a big hit as China’s lockdown stopped the arrival of Chinese tourists to the Philippines. China accounted for the bigger number of foreign arrivals in 2019.
South Korea, the second largest source of arrivals, also imposed travel restrictions because of the contagion.
“By mid-March, the onrush of community transmissions in the Philippines prompted the national and local governments to impose containment measures in Metro Manila and most other parts of the country in a bid to stop the further spread of the virus, thereby grounding economic activity to a halt,” Dominguez said.
“It did not help first quarter growth that the local economies, particularly in the subregion of Calabarzon (Cavite-Laguna-Batangas-Rizal-Quezon) were adversely affected in January by the eruption of Taal Volcano,” he added.
Despite the fact that COVID-19 is an unprecedented health crisis, Dominguez reiterated the Philippines is in a good position to meet the challenges posed by this contagion.
He said the country has strong macroeconomic fundamentals which he attributed to President Duterte’s conservative approach to economic policy since his term started in 2016.
The finance chief said these have strengthened investor confidence in the Philippines “at this time when the government needs international support to finance COVID-19 response and lead the country to post-pandemic recovery.”
Private economists are also expecting a deeper contractions in the second quarter.
Noelan Arbis, economist at British banking giant HSBC, said the Philippine economy is likely to contract further in the second quarter as the impact of the lockdown intensifies.
“As bad as things were in the first quarter, things are likely to get worse in the second quarter. The government lockdown has been extended until mid-May and now spans other major cities outside of Luzon,” Arbis said.
Arbis added both private consumption and services are likely to contract in the second quarter, leading to a broadbased decline in economic activity.
“Indeed, high frequency indicators show that people’s mobility, on average, has declined most in the Philippines compared to other ASEAN countries. Community access to retail shops, groceries, workplaces, and transit stations have all declined by at least 50 percent in the country since the start of the year,” Arbis said.
ING Bank Manila senior economist Nicholas Mapa said the streak of 84 quarters of positive growth in the Philippines ended at the hands of COVID-19.
Mapa has warned the current lockdown spanning almost a full two months of the second quarter would undoubtedly drag GDP deep into contraction as the enhanced community quarantine destroys the consumption-driven economy.