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Philippines: Q1 GDP slumps 4.2%
Philippine stuck in recession
MANILA, Philippines — The country’s road to recovery hit another snag as the Philippines remained in recession in the first quarter, with gross domestic product (GDP) contracting by a weaker-than-expected 4.2 percent amid a resurgence of COVID-19 cases and slow vaccine rollout that kept a tight rein on business sentiment.
The Philippine Statistics Authority said the 4.2 percent GDP decline in the first quarter was below the 3.2 percent market consensus and also worse than the 0.7 percent contraction in the same period last year.
It marked the fifth straight quarter of economic decline, extending the recession in the country in dire need of recovery from the pandemic.
The first quarter performance came even before the height of the renewed lockdowns toward the end of March until this month, proving that consumer spending, business sentiment and overall economic activities remain subdued.
In fact, household consumption, which accounts for about 70 percent of GDP, dipped 4.8 percent amid low incomes as the unemployment rate remains high.
All major sectors also slumped, led by industry and services at 4.7 percent and 4.4 percent, respectively. The agriculture sector went down 1.2 percent largely due to the African swine fever and the spillover effects of last year’s typhoons.
The Philippines also continued to be a laggard in economic recovery in the region after China and Vietnam bounced back stronger in the first quarter. Neighboring Indonesia, Malaysia and Thailand are also expected to decline, but at a much softer pace.
While economists are already expecting the government to miss its 2021 target of 6.5 to 7.5 percent growth, Socioeconomic Planning Secretary Karl Chua is choosing to be optimistic as “there are still months to recover and catch up.”
With the latest slump, research and advocacy group IBON Foundation estimates that GDP needs to grow by an average of 10.8 percent in the next three quarters to reach the midpoint of the Development Budget Coordination Committee’s target.
“Our projection this year has already assumed that vaccination will ramp up by the middle of the year as we have 27.7 million doses to tap until July. We will review the data and see how it will impact the rest of the growth trajectory for the year,” Chua said in a briefing.
De La Salle University economics professor Maria Ella Oplas, however, is not optimistic about hitting government targets, considering that the end of the first semester is coming to a close in just more than a month.
She argued that vaccination is an expenditure to the government and this is supposed to translate to economic activities with multiplier effects. She said the distribution should serve as an economic pump, but it failed to do so given the impact of lockdown measures.
“Unless the government vaccinates the majority of the population within the year, I don’t think that target will be attained. The government must pour its resources in Metro Manila, the epicenter of the virus, especially on tracing and vaccination,” Oplas said.
“Pump priming, government spending is good. Vaccination, testing, even the ayuda, are what we need right now at a time people do not want to spend. Some people don’t even have the means to spend. Government pump priming is necessary right now,” she said.
Ateneo de Manila University economist Alvin Ang echoed the same, noting that vaccine rollout is a crucial element for recovery as loosening will require that these be in place to boost confidence.
“There will be improvements ahead though not as fast as planned due to still varying restrictions and still limited availability of vaccines,” he said.
With the economy on a slump and the cost of goods and services in an uphill, now falling under stagflation, Chua is still opting to not call it as such.
“We look at our inflation targets on a yearly basis, not on a quarterly or monthly basis. We would not call it (stagflation) until the data justifies it,” Chua said.
ING Bank senior economist Nicholas Mapa, for his part, emphasized that lockdown still in place would likely shave off momentum of an economic recovery, which greatly hinges on easing mobility restrictions and further opening up of businesses to encourage higher consumer spending.
“The recent lockdowns are expected to weigh on the services sector the most, with personal services not allowed to operate due to social distancing regulations,” Mapa said.
Even with the strict quarantine restrictions in place anew, Chua maintained that impact on the economy is much more muted compared with last year as several sectors were allowed to open and public transport was not restrained.
“There are some sectors that are not going to recover as fast, either they are non-essential or the natural is to bring people together like entertainment and tourism,” Chua said.
“But we have to look at it in a holistic approach. The best and effective way is to get people back to work and create income to support other sectors through their consumption and spending,” he said.
Chua continues to push for the easing of restrictions, saying that once the present spike is over, the government can implement quarantine relaxations in a phased approach to boost recovery this year.
“Unless there is a major change in how we do our quarantine policies, we cannot expect significant growth. That is why we have been proposing since October to gradually and safely reopen the economy,” he said.
But, University of the Philippines professor emeritus and former socioeconomic planning secretary Ernesto Pernia said restrictions may be eased but health system capacity remains a concern.
“NCR Plus can be put on GCQ but the testing, tracing, isolation and treatment plus health system capacity need to be markedly and palpably improved,” Pernia said.
“Strange that lessons from last year have not been seriously taken to heart and learned. These are the standard practices, including bold stimulus, in our ASEAN neighbors,” he said.
Similarly, a bigger fiscal stimulus to aid in economic recovery is what the IBON Foundation is pushing but Chua stood pat with prioritizing existing budget allocations.
The total budget for economic recovery for 2021 is at P2.5 trillion, roughly 14 percent of GDP.
“We have three budgets already being implemented. Two of them have been extended and are not yet fully implemented. We should prioritize these first,” Chua said.
While he supports proposals to help the people especially those afflicted by hunger and joblessness, Chua said the government needs to be prudent in finding a revenue source or savings to fund such programs.
“Nothing is free from heaven, we have to find those revenue sources so we can deliver these to the people,” he said.
IBON executive director Sonny Africa, however, said the lack of another stimulus would just make it worse for a pandemic-stricken economy.
“If we are seeing output contractions in the sectors that gained employment, namely, agriculture, construction and trade, it implies declining earnings and quality of work. I think the key point is this huge economic contraction in these sectors, it exposes severe labor market problems,” Africa said.
“The biggest policy misstep is the over-reliance on community quarantines and refusal to give out cash subsidies. If they refuse a third stimulus, we are headed to a bad 2021,” he said. – Elijah Felice Rosales
Source: https://www.philstar.com/business/2021/05/12/2097526/q1-gdp-slumps-42