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Worst is behind us; but we’re not yet out of the woods – BSP chief

The head of the country’s central bank said on Thursday that the worst was over for the Philippine economy, after the government announced that the country had plunged into a recession due to the coronavirus pandemic.

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said the government’s economic managers were assessing the performance of the economy, which registered a 16.5-percent contraction in the second quarter.

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“I believe the worst is behind us,” he said. “But we’re not out of the woods yet.”

“No doubt, given the sharp drop of the economy in the second quarter, I’m convinced that the third quarter will be better than the second, and that the fourth quarter will be much better than the third,” he said.

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The central bank has been one of the most proactive government agencies in responding to the pandemic, initiating policies that resulted in some P1.3 trillion in cash released into the local financial system since early this year.

More liquidity

Thanks to the prevailing low inflation regime, Diokno said policymakers were prepared for more liquidity should that need arise to buttress the economy.

Diokno pointed out that a large part of the country’s success in overcoming the current crisis would depend on “leadership, clear messaging, and human behavior.”

“Each individual has a role to play in winning the war against the virus,” he said. “The virus won’t go away soon, so we have to learn to live with it.”

Also on Thursday, business groups and economic analysts called on the government to fire a powerful “fiscal bazooka” in battling the economic crisis.

Stimulus program

The Management Association of the Philippines (MAP) said the recession underscored the need for the P1.3-trillion fiscal stimulus program under the proposed Accelerated Recovery and Investments Stimulus for the Economy (Arise) bill.

The measure was backed by more than 40 local and foreign business groups, five Cabinet secretaries, and approved by more than 90 percent of the members of the House of Representatives.

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“We have been saving for the rainy days and now is the time to spend,” said MAP president Francis Lim.

Malacañang had pushed aside the economic stimulus bill in favor of a package that would cost less—P140 billion to P162 billion. The economic managers said Arise could not be funded.

But Lim said the funding could be “staggered and partly supported by borrowings.”

“We should not also leave any stone unturned to regain public confidence as our economy is principally driven by domestic consumption,” he said.

In a research note, ING Philippines economist Nicholas Mapa projected that with the dismal gross domestic product (GDP) print of 9 percent for the first semester, full-year GDP could contract by an average of 7 percent.

Second-half comeback

“Down on its knees and bloodied, the Philippine economy must muster a second-half comeback to be remembered,” Mapa said.

HSBC economist Noelan Arbis said the latest Philippine GDP performance pointed to the need for an “all hands on deck” approach to boost the economy.

“The lack of a significant fiscal stimulus is particularly concerning for the country, which now appears to be the region’s hardest-hit economy due to the pandemic,” Arbis said.

He said the P1.3-trillion stimulus fund could be spent for infrastructure projects, financial assistance to businesses from 2020 to 2023, wage subsidies, cash-for-work programs for displaced workers, and zero-interest loans for companies.

Despite having cut interest rates by 175 basis points this year, HSBC forecast another 25-basis point rate cut by the BSP in the fourth quarter, bringing the overnight borrowing rate to a new record low of 2 percent. it is also expecting a 200-basis point cut in the reserve requirement ratio on banks by year-end to provide another boost to domestic liquidity.

“Continued monetary support through increased open market operations should also be expected for as long as the economy needs it,” Arbis said.

Filipino consumer

“The solid macroeconomic fundamentals of the Philippine economy was deeply rooted in the Filipino consumer and very much like any sports team, the fate of the entire team hinges largely on the performance of his or her star player. COVID-19 and the lockdowns that followed have completely knocked out Filipino household spending, rendering the once robust spending machine a shell of its former self,” ING’s Mapa said.

While government officials opted to refrain from unloading a “fiscal bazooka” to offset scathing losses in consumption and the evaporation in capital formation, Mapa was hopeful that the latest numbers would prompt a “substantial fiscal rescue effort to spearhead the economic recovery as the rest of the economy remains in sickbay.”

Nabil Francis, president of the European Chamber of Commerce of the Philippines, said the latest GDP figure was “a wake-up call for the country to commit to more proactive measures that will prevent our economy from sliding even further.”

He strongly urged the government to adopt “a maximum fiscal response” that would add more funds for social welfare programs, particularly for health- and COVID-19-related measures.

“It is also crucial to extend liquidity and credit support for businesses especially to MSMEs (micro, small and medium-sized enterprises) and heavily affected industries,” he said. —WITH A REPORT FROM ROY STEPHEN C. CANIVEL

For more news about the novel coronavirus click here.
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