The inevitable recession: PH expected to go through 4 quarters of slump

The Washington-based Institute of International Finance (IIF) expects the Philippines’ gross domestic product (GDP) to shrink year-on-year for all four quarters of 2020 and end the year with a 3-percent contraction amid the uncertainties caused by the new coronavirus disease (COVID-19) pandemic.

IIF associate economist Yuanliu Hu told the Inquirer that GDP contraction would be “most severe” in the second quarter, which covered the months of April and May when the enhanced community quarantine (ECQ)—said to be one of the most stringent lockdowns in the region—was imposed and put a halt to 75 percent of the economy.

“We further lowered our forecast because first-quarter data already showed substantial weakness, and the longer-than-expected lockdown will be challenging for the economy,” Hu said.

The IIF initially projected the Philippines could eke out a 1-percent growth this year and would be among a few economies in the region to post positive growth. Updating its forecast, Hu said the IIF expected “private consumption and investment will contribute most to the contracted growth this year.”

After the Philippine economy shrank by 0.2 percent during the first quarter, Hu said the IIF projected the three succeeding quarters to also contract—4.3 percent year-on-year in the second quarter, 4 percent in the third quarter, and 3.4 percent in the fourth quarter.

“I don’t expect rebound will be so rapid. Even if the [pandemic] is controlled to some extent, consumption and investment will not return to the precrisis level anytime soon,” Hu said, noting all major Southeast Asian economies would maintain negative growth throughout the year.

While some economists see modest growth by the fourth quarter, Hu said base effects may prevent the Philippines from achieving positive GDP growth by year-end as the fourth quarter of last year “was quite good”—growing 6.7 percent year-on-year.

“Looking forward, the speed of reopening the economy is very important for growth. If there is a second wave of outbreaks, the situation will definitely be worse,” Hu warned.

The Philippine economy is expected to return to growth by 2021. Hu estimated a 7.5-percent growth, as “the pandemic’s negative effect ease, domestic consumption and investment rebound, and trade activities return back to normal.”