Steeper GDP decline seen this year

After a deeper-than-expec­ted economic contraction in the third quarter, economists downgraded their full-year 2020 outlook on the Philippines to price in a more severe downturn arising from the coronavirus pandemic and the consequent job losses and business disruptions amid lockdowns.

Economists now see the Philippines’ gross domestic product (GDP) contracting by at least 9.3 percent to as much as 10.8 percent this year, before staging a modest recovery next year.

In the third quarter, GDP declined by 11.5 percent year-on-year, worse than the median forecast of 9.6 percent in a Bloomberg poll. The contraction, however, was slower than the 16.9-percent decline in the second quarter.

In a research note issued on Wednesday, think tank Fitch Solutions said it expected the economy to contract by 9.6 percent this 2020, revised lower from its 9.1-percent outlook previously, before rebounding by 7.6 percent next year and returning to pre-COVID-19 output in 2022.

“The economy has been devastated by the COVID-19 pandemic, which has hurt external demand and resulted in domestic lockdowns and restrictions on mobility. In particular, curbs on domestic activity to suppress the spread of the virus have severely dragged on the Philippine economy, in which private consumption and investment account for around 100 percent of output. While in November new daily cases are gradually falling from their peak in August, at around 2,000 reported cases a day, the risks from another surge in cases if domestic prevention measures are relaxed further, remains high,” Fitch Solutions said.

In a separate research note, Bank of the Philippine Islands (BPI) revised its 2020 GDP forecast to -9.3 percent from -8.1 percent previously.

“Despite the double-digit contraction in the third quarter, we continue to hope that we’ve already seen the bottom for the economy. Given the behavior of the leading indicators that we’re monitoring, it’s possible for the economy to minimize its contraction in the fourth quarter,” BPI said.

Apart from restoring consumer confidence, BPI said one big challenge would be to address government underspending. “The decline in GDP would have been milder if public construction and infrastructure spending did not decline. We reiterate the need for a strong fiscal response that could provide much needed employment and offset the losses of the private sector,” BPI said.

With unemployment still high at 10 percent and business sentiment still negative, ING does not expect a quick rebound in growth with GDP remaining in negative territory until a base effect-induced bounce in second quarter of 2022. ING, which is expecting an 11.9-percent contraction in the fourth quarter, has revised its full year 2020 GDP forecast to -10.8 percent.

British bank HSBC, for its part, expects full year GDP to decline by 9.6 percent this 2020, followed by a modest growth of 5.8 percent in 2021.

“The focus now must be on the recovery. High frequency data suggest economic activity appears to be picking up as of late. Authorities have also shortened curfew hours in Manila and lifted the city’s stay-at-home order as daily COVID-19 infections continue to ease. These factors should help raise economic activity in fourth quarter,” HSBC said in a research note.

“However, local mobility data remain among the weakest in the region and quarantine restrictions are still broadly in place, so the pace of the recovery is likely to remain sub-par compared to countries that have managed to contain the virus earlier,” HSBC said,

HSBC added that fiscal support would be the key factor to watch in the quarters ahead. It said the government’s priority for now would be to pass the 2021 budget—which proposes a 10-percent increase in government spending from this year—in a timely manner.

Michael Ricafort, economist at RCBC, said the domestic economy may contract by 9.5 percent to 10.5 percent this year before posting a positive growth of 6-7 percent next year due to the low base this year.