Philippine economy shrank 9.5 percent in 2020

MANILA, Philippines — The economy contracted by a record 9.5 percent last year, buckling under the stress of a prolonged pandemic lockdown and a spate of natural disasters that hit the country during the year.

Decline in the gross domestic product, a measure of economic output, in 2020 was the sharpest since government GDP data began in 1946 and seconded only by the seven percent contraction in 1984 during the Marcos regime.

“It is really a result of the pandemic,” presidential spokesman Harry Roque said at a press briefing, reacting to the latest economic data.

“The good news is, while we are still in the negative territory, our economy improved. From (contraction of) 16.9 percent at the height of our lockdown, it became 11.3 and then 8.3 during the last quarter,” he said.

“We are happy that somehow, because of the opening of the economy, our economy is gradually improving,” he added.

Roque nevertheless admitted that the improvements are not enough to bring back normalcy and address hunger in the country.

“We can still open (the economy) even if there is a new variant. We just have to wear masks, wash hands frequently, and observe physical distancing. If we do not open the economy, many will go hungry,” he added.

Roque explained that growth projections of economic managers would be realized if the economy is reopened.

“The decision on whether we would end hunger lies on us. If we are negligent, the economy won’t be opened. Metro Manila, which accounts for 60 percent of our GDP won’t be downgraded to MGCQ (modified general community quarantine) and we won’t be able to recover,” he said.

The contraction settled within the lower end of the estimate of the Development Budget Coordination Committee (DBCC) of between 8.5 percent and 9.5 percent. This compared with the pre-pandemic growth level of six percent in 2019.

With the country’s projected population of 109.1 million, per capita GDP contracted by 10.7 percent in 2020.

In the fourth quarter of the year alone, the economy contracted at a slower pace of 8.3 percent coming from the revised 11.4 percent decline in the third quarter as restrictions were gradually eased and seasonal demand kicked in. This compared with growth of 6.7 percent in the fourth quarter of 2019.

On a quarter-on-quarter basis, the economy grew by 5.6 percent in the fourth quarter of 2020.

“This improvement was the result of the further reopening of businesses and wider accessibility of public transport since October 2020,” said acting Socioeconomic Planning Secretary Karl Chua at a briefing yesterday.

“However it also shows the limits of economic recovery without any relaxation of our quarantine policy,” he added.

“If we do not open the economy, many will go hungry,” Roque said at Malacañang. “We can still open (the economy) even if there is a new variant. We just have to wear masks, wash hands frequently, and observe physical distancing.”

Declines across sectors

Still, declines were seen across major economic sectors annually and in the fourth quarter as businesses continued to operate on a limited capacity, and as a series of strong typhoons devastated agriculture areas.

The services sector, which had a 5.5 percentage contribution to the full-year growth, declined by 9.1 percent. Industry, comprising four percent of the headline rate declined by 13.1 percent while agriculture, making up 0.02 percent of the full-year performance declined by 0.2 percent.

By sub-sector, the sharpest declines were seen in construction, manufacturing, and transportation and storage.

The impact of six strong typhoons that hit in the country in the fourth quarter as well as the resurgence of cases of African swine fever caused a decline in the agriculture sector in the last quarter, after being stable in the past quarters.

On the demand side, private consumption, which comprises some 70 percent of GDP, remained weak, contracting by 7.9 percent annually, reflecting diminished spending as most family-related spending were halted while schools remained shuttered and children still prohibited from going out of their homes.

Firms also invested less or not at all in fixed assets last year as seen in the sharp decline in Gross Capital Formation, at 35.8 percent.

Chua noted that the economy would be “hard-pressed” to make a stronger recovery if children and families are restricted from spending, as up to 50 percent of non-essential retail sales were driven by family spending.

Quarantine restrictions reduced household spending by P801 billion last year, an average of P2.2 billion per day.

National Economic and Development Authority estimates that the decline in consumption translates to a total income loss of around P1.04 trillion in 2020, or an average of around P2.8 billion per day.

Other than mobility restrictions, massive income loss among households at the height of the pandemic was to blame for anemic consumption.

On a per capita basis, annual family income declined by some P23,000 per worker on the average.

NEDA had proposed ways to rev up family-based spending such as the gradual reintroduction of face-to-face learning in areas with the lowest risk of COVID-19 transmission and lowering the age bracket of those allowed to go out of their homes.

President Duterte initially approved the proposals but later held them off following the detection of more infectious COVID-19 strain in the country.

“The latest data on the new COVID variants came as we presented our proposal. And the President has taken the right decision to postpone this,” said Chua.

Despite the threats posed by the new variants, he said prospects for this year remain to be encouraging with the continuous reopening of the economy and imminent rollout of the vaccination program.

In a research note, Rizal Commercial Banking Corp. chief economist Michael Ricafort said recovery prospects this year would be challenged by the further spread of new COVID-19 strains.

“The new coronavirus strains/variants are more contagious and may lead to more travel restrictions and more lockdowns, and could slow down economic recovery prospects,” he said.

For Sen. Francis Pangilinan, promoting people-powered agriculture may be key to economic recovery.

“We are a largely agricultural country. Let us strive to be a powerhouse in food production and distribution. We need to focus on food supply system, starting with the farmers and the fisherfolk,” he said.

“These numbers confirm what the average Filipino already knows,” he added. “This is very difficult for minimum wage earners who earn about P500 a day. It is even more difficult for those who have lost their jobs and forced to become tricycle drivers or repair roofs or sell scrap at junk shops.”

Biggest stimulus

Sen. Joel Villanueva said an accelerated vaccine rollout would be the “biggest” economic stimulus.

“Our full-year GDP contraction of 9.5 percent in 2020 as reported by the Philippine Statistics Authority today should prod our government to further accelerate the vaccine rollout. The vaccination program remains the biggest economic stimulus,” Villanueva said.

“We reiterate our call that essential workers, outside of those in the health and security sectors, be included in the priority list of those who will receive it first,” Villanueva said.

For the House minority bloc, a Bayanihan 3 law can greatly help Filipinos tide over the global pandemic.

“I urge the economic managers to take a second look at the Bayanihan 3 bills pending in Congress. My version proposes a P400 billion spending – P330 billion as COVID-19 response and P70 billion as disaster response,” Deputy Minority Leader Stella Quimbo said.

She said the data released by the PSA “simply validated the widespread economic hardship felt by the Filipinos.”

She stressed there’s not enough allocation in the 2021 budget or in the Bayanihan 2 to cover a massive vaccine rollout program.

“The road to resilience of the Philippine economy is long and possibly winding. We must take the first step now,” she insisted. “If businesses are subsidized, then we can help minimize the risk of job loss for our workers.”

The Associated Labor Unions (ALU) said more companies may be forced to close or retrench workers, if the continuing economic decline is not addressed immediately.

“If not correctly addressed in time, this seriously high 9.5 percent decline of the economy will lead to deeper poverty and wider inequality threatening more unemployment and income losses for workers and push more businesses to resort to cost-cutting adjustment measures to cope with weak consumer demand and falling profits,” ALU spokesman Alan Tanjusay said in a statement.

Meanwhile, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno announced yesterday the monthly release of data on labor force – instead of quarterly – beginning February.

“For the Philippines, employment data is very important. We usually have the quarterly data in January, April, July and October. Now starting February we will have employment data, which to me is crucial for a developing country like us. So, we will have monthly data in between,” Diokno said at a virtual briefing. — Lawrence Agcaoili, Alexis Romero, Cecille Suerte Felpe, Mayen Jaymalin