MANILA, Philippines — Extending the general community quarantine (GCQ) in Metro Manila and neighboring provinces that host the bulk of the country’s economic activities until this month’s end while COVID-19 infections continued to increase could shrink the economy by up to 8 percent this year, London-based Capital Economics said.
“I don’t know if it will deepen the recession; it probably will level it off,” Finance Secretary Carlos G. Dominguez III said Thursday when asked to comment about the retention of GCQ in most areas that comprised two-thirds of domestic gross domestic product (GDP).
“But certainly, it will not pull us up,” added Dominguez, who heads the Duterte administration’s economic team.
Under a GCQ, three-fourths of economic activities already resumed—a reversal of the situation under the enhanced community quarantine (ECQ) imposed in Luzon and other parts of the country with high COVID-19 cases from mid-March to May, which put a halt to 75 percent of the economy and shed millions of jobs.
Earlier estimates of the state planning agency National Economic and Development Authority (Neda) placed output losses during the first 45 days of ECQ at P1.1 trillion or 5.6 percent of GDP.
As such, the Philippines slipped into a recession during the first half of the year, as the 0.2-percent GDP contraction in the first quarter was expected to have been followed by a faster slide during the second quarter.
President Rodrigo Duterte’s economic managers had been pushing for a gradual resumption of the economy, under minimum health standards, to resume jobs as well as business and consumer confidence.
Dominguez said the economic team was “currently reviewing the emerging figures” to determine if their earlier projection of 2-3.4 percent GDP contraction for 2020 still reflected the current situation.
In a report, Capital Economics said “a long lockdown, which has now been in place for four months, and inadequate fiscal support will delay the recovery in the Philippines.”
“The Philippines is likely to be one of the hardest-hit countries in the region by the pandemic. We have downgraded our forecast and now think the economy will contract by 8 percent this year,” Capital Economics added.
Capital Economics’ previous forecast was a 6-percent dive in GDP in 2020.
Capital Economics lamented that even as the Philippines had among the most stringent COVID-19 lockdowns in the region, “there are few signs that the virus is being brought under control.”
“Failure to contain the virus means that people will be slow to resume their normal lives. The lengthy lockdown is likely to have done substantial lasting damage to the labor market and household balance sheets. Recent data show a huge surge in unemployment and inactivity. Many households are likely to have already burnt through their savings and seen their debt burdens grow. This will weigh on demand long after restrictions are fully lifted,” Capital Economics said.
For Capital Economics, “the level of fiscal support has been inadequate,” which it estimated at only about 3 percent of GDP.
“The government’s stimulus package is small considering the scale of the economic shock. What’s more, spending has been slow to reach the people most in need. Many jobs will have been lost and businesses will have folded that might otherwise have been saved,” according to Capital Economics.
For the long-term, Capital Economics also said “we think political uncertainty will drag on prospects in the Philippines and Thailand.”
In a separate July 15 report titled “EM Challenges: Tourism Comes to a Halt,” the Washington-based Institute of International Finance (IIF) said that since “tourism accounts for a substantial share of employment in a number of large emerging markets such as Mexico, Thailand, and the Philippines… the economic impact may reach dramatic levels in many countries.”
Based on the IIF’s baseline scenario of a two-thirds decline in international tourism this year, the Philippines’ GDP would drop by about 2 percent from last year, as its tourism sector accounted for around 6 percent of total employment in 2019.
The IIF had projected the Philippine economy to shrink year-on-year during all four quarters of 2020 and end 2020 with 3-percent contraction.