Economy contracts at slower pace in Q4

RECOVERY WIDELY EXPECTED THIS YEAR

The pandemic-induced recession eased further in the fourth quarter as businesses continued to reopen from the strict and hard lockdowns that caused the economy to stall, economists said.

Ruben Carlo Asuncion, chief economist at Union Bank of the Philippines, said the gross domestic product (GDP) contraction further eased to five percent in the fourth quarter last year.

“For 4Q20 GDP growth, results are likely still to be grim,” Asuncion said.

After booking a record 16.9 percent GDP contraction in the second quarter as Luzon was placed under enhanced community quarantine in the middle of March, the slowdown eased to 11.5 percent in the third quarter as the National Capital Region (NCR) shifted to general community quarantine in June.

As a result, the GDP likely shrank by 8.6 percent last year from a growth of six percent in 2019, the bank economist said.

The Philippine economy last contracted in 1998 due to the Asian financial crisis.

Asuncion said the manufacturing purchasing managers’ index (PMI) slipped back into contraction territory in October, dampening hopes of a quicker recovery of domestic demand.

“On the virus front, COVID-19 restrictions are likely to linger with continuing downside impact on the return of economic activities, prelockdown level. In recent weeks, the country was lashed by a cluster of devastating storms affecting the supply of food and other basic commodities, and consequently raising inflation,” Asuncion said.

Asuncion said risks remain with food prices continuing to rise including fuel and gasoline costs but headline inflation is well within the two to four percent target range set by the Bangko Sentral ng Pilipinas (BSP).

According to Asuncion, spending execution has so far been lackluster and slow despite the passage of the Republic Act 11494 or the Bayanihan to Recover as One Act (Bayanihan 2).

Security Bank chief economist Robert Dan Roces expects a GDP decline of 9.5 percent in the fourth quarter, bringing the contraction in 2020 to 9.9 percent.

This is deeper than the revised 8.5 to 9.5 percent GDP contraction penned by economic managers via the Development Budget Coordination Committee (DBCC).

“Mobility has become an important measure of economic activity, and aggregated mobility data suggests that activity continued to pick up at a modest pace in 4Q20; manufacturing PMI has averaged 49.2 in the fourth quarter compared with a 48.6 average in 3Q20,” Roces said.

Roces said circling back to mobility data in December would show movement likely reached pre-pandemic levels because of holiday consumption – which should bode well for GDP – but may not be enough to push full-year growth further.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said the Philippines booked a double-digit GDP contraction of

10 percent last year and is expected to bounce back with a seven percent growth this year and eight to 10 percent next year on faster economic recovery with increased infrastructure spending and approvals of needed economic bills.

“Further reopening of the economy would be the more sustainable major source of faster economic recovery that would enable more businesses to operate at higher capacity that entail more investments and creation of more jobs or at least preventing layoffs, more tax revenue collections to finance more COVID-19 programs and more economic opportunities,” Ricafort said.

For his part, Asuncion said UnionBank sees the country’s GDP expanding by 5.5 percent this year and by 6.4 percent in 2022.

“2022 is an election year and would likely be at a higher growth trajectory. We see 2022 at 6.4 percent, just short of the government’s target, but is within prepandemic economic growth level,” Asuncion said.

Roces said Security Bank expects 2021 growth to be better than 2020, with firmer market conditions in the second half of the year and likely nudged by vaccine rollouts which should improve confidence and market sentiment, enough for an economic rebound to begin.

“However, we might not yet surpass 2019’s growth level this year; full recovery is expected in 2022. A smooth rollout of the vaccination program in 2H21 is crucial, and this could pave the way for an easing of social distancing restrictions and lead to mobility improvements,” Roces said.

The DBCC penciled a GDP growth of 6.5 to 7.5 percent this year and eight to 10 percent next year.