Philippines: ‘Economic slump likely bottomed out in May’

MANILA, Philippines — The worst may be over for the Philippine economy as its contraction is seen to have bottomed out in May, the Asian Development Bank (ADB) said yesterday.

In a briefing, ADB country director for the Philippines Kelly Bird said based on data collected in the first half of the year, economic contraction may have been larger than five percent.

“But we’ve looked at a number of indicators such as cement sales, motor vehicle sales, purchasing managers index, among other indicators. And we think the worst is over, that the decline in the economy bottomed out most likely in May,” he said.

“We are now on the next phase of recovery but the recovery is going to be fragile and it will be a U-shaped recovery.”

The Manila-based multilateral institution expects the domestic economy to shrink by 2.3 percent to 5.3 percent this year, before recovering to around 6.5 percent growth in 2021 throughout 2022.

The economy is already widely expected to have entered a technical recession in the second quarter after a 0.2 percent decline in the first quarter of the year.

Economic managers have already conceded that second quarter performance will be worse but hopes a rebound will occur in the last two quarters of the year.

“I think the quarter two contraction will clearly be a deep one. Because the economy has been locked down for most of April and May. It will be very deep but has bottomed out. But there will be a gradual improvement quarter-to-quarter. So there will be a soft rebound in the third quarter,” Bird said.

During the height of the strict lockdown in April unemployment, shot up to a record rate of 17.7 percent, translating to around eight million jobs lost because of mobility restrictions.

ADB estimates this rate to have gone up to around 22 percent in June but as the economy reopens more and more people go back to work, this may decline to below 10 percent by early next year.

“But because of slower economic growth, we don’t expect that to return to pre-COVID levels until 2022,” Bird said.

Recovery in consumer spending as well as fiscal response by the government will be crucial to recovery, he said.

“Some of the good news is PMIs (Purchasing Managers’ Indexes) have stabilized in June. And we expect that confidence to continue. So that is a good indicator to watch out for in the coming months. That suggests that businesses are starting to feel that the worst is over,” Bird said.

With more countries reopening their economies, Bird said Philippine exports are also bound to recover from a slump.

“We see the contraction in exports has also bottomed out as economies open up,” said Bird.

He noted though that some sectors will take a longer time to recover such as “high contact sectors” such as tourism, segments of retail and services, and private education.