Philippine economy seen shrinking anew in Q1

MANILA, Philippines — The economy may contract anew in the first quarter, further extending the pandemic-induced recession, according to economists.

Bank of the Philippine Islands chief economist Jun Neri said the country’s gross domestic product (GDP) may contract mildly in the first quarter. “It seems consumer confidence is starting to show a more meaningful recovery based on the mobility data in the last six weeks of 2020. Combined with some easing in transport protocols, consumers have learned to take the necessary precautions to confidently go out.”

He also said consumer spending may recover faster this year as the use of online shopping apps has also become widespread and has broken records.

According to Neri, the economy is expected to grow by 6.8 percent this year after slumping to a record 9.5 percent  in 2020 as the economy stalled when Luzon was placed under enhanced community quarantine in mid-March to slow the spread of the virus.

“However, even at this brisk pace, economic output will not be able to return to the 2019 level yet, and a full recovery may only happen in 2022. On the other hand, uncertainties still remain and another lockdown may prevent the economy from reaching more than six percent growth,” Neri said.

Neri also cited inflation could also affect the economic rebound this year as upside risks could keep inflation above three percent in the coming months.

ING Bank senior economist Nicholas Mapa said the country’s GDP would likely contract at a slower pace of 5.4 percent in the first quarter before posting a substantial 13 percent rise in the second quarter, due mainly to base effects.

Household spending, the main growth engine of the economy, would likely stay in low gear with the unemployment rate at 8.7 percent with prospects for a quick turnaround in consumption  compounded further by the return of inflation.

The Dutch financial giant sees inflation breaching the two to four percent target of the Bangko Sentral ng Pilipinas (BSP) as early as April.

“With only a modest pickup in government outlays expected in 2021 and with the trade balance forecast to remain in deficit, we do not see a stark pickup in economic activity with GDP growth powered mainly by base effects. The economy still lacks substantial momentum to drive growth back to the six percent level,” Mapa said.

Michael Ricafort, chief economist at Yuchengco-led Rizal Commercial Banking Corp. (RCBC), said a GDP growth of at least six percent is technically possible for the Philippines this year even if there would be a relatively slower economic recovery, especially if Metro Manila would remain under general community quarantine.

“The worst of the COVID-19 hard lockdowns from mid-March 2020 to mid-May 2020 would be hard and less likely to be replicated in 2021, thereby increasing the possibility of faster GDP growth of at least six percent for 2021, quantitatively largely due to the much lower base,” Ricafort said.

Ricafort said any reduction in new COVID-19 cases, especially with increased rollout of the vaccines in the second half of 2021 would help shore up business and consumer confidence and spending.

Ricafort said the  positive credit rating moves on the Philippines recently, especially the credit rating upgrade from Japan Credit Rating Agency, as well as the investment grade rating from Fitch Ratings, Moody’s Investors Service, and S&P Global Ratings fundamentally reflect the country’s improved economic and credit fundamentals.