Narrower GDP contraction seen in 4th quarter

The usual consumer spending boost during the Christmas holidays likely narrowed the economic contraction in the fourth quarter of 2020 even as bad weather that raised prices faster and prolonged quarantine restrictions tempered demand for goods and services.

Majority of private-sector economists thus projected the Philippines’ full-year gross domestic product (GDP) dropping by more than 9 percent amid the COVID-19 pandemic.

Of the 21 economists and financial institutions polled by the Inquirer last week, only three estimated October-to-December 2020 GDP worse than 10 percent.

The government will report on the fourth-quarter and full-year 2020 GDP performance on Thursday, Jan. 28.

The most pessimistic forecast was that of Bank of the Philippine Islands’ Emilio Neri Jr., who expected the fourth-quarter output dropping 12.2 percent year-on-year, even worse than the 11.5-percent decline in the third quarter.

“Major typhoons and floods in October and early November had a significant drag on economic performance in Cagayan Valley and eastern Metro Manila’s economic performance. While not as serious as the drags of ‘Ondoy’ and ‘Pepeng’ in 2009, we believe this had a substantial dent on consumer and investment behavior in Metro Manila through late November,” Neri said, referring to the string of strong typhoons that devastated the country before 2020 ended.

Also, “higher food prices was a damper on discretionary spending as consumers used up a good portion of budget on food during the holidays [despite] contraction in food manufacturing due to lack of pork supply to meat processors,” Neri added.

If Neri’s fourth-quarter forecast is correct, full-year 2020 GDP could slide by a record 10.6 percent—the worst recession post-war and beyond the government’s estimate of 8.5-9.5 percent drop.

Two other economists also see double-digit GDP contraction in the fourth quarter of 2020: ING’s Nicholas Antonio Mapa and Moody’s Analytics’ Denise Cheok shared the same forecast of 10.4 percent.

The other fourth-quarter GDP contraction forecasts were: Ateneo de Manila University’s Alvin Ang, 9.8 percent year-on-year; Security Bank’s Robert Dan Roces, 9.5 percent; Deutsche Bank’s Michael Spencer and HSBC’s Noelan Arbis, 9 percent; Oxford Economics’ Makoto Tsuchiya, 8.7 percent; Capital Economics’ Alex Holmes and RCBC’s Michael Ricafort, 8.5 percent; Institute of International Finance’s Yuanliu Hu and United Overseas Bank, 8.2 percent; Goldman Sachs, 7.5 percent; ANZ’s Sanjay Mathur, 6.8 percent; IHS Markit’s Rajiv Biswas, 6.3 percent; BDO Unibank’s Jonathan Ravelas, 6.2 percent; Standard Chartered’s Chidu Narayanan, 6.1 percent; University of Asia and the Pacific’s Victor Abola and Morgan Stanley, 6 percent; Sun Life Financial’s Patrick Ella, 5.7 percent, and the lowest forecast of 5 percent by UnionBank’s Ruben Carlo Asuncion.

Compared to the 8-percent quarter-on-quarter growth posted in the third quarter from the second-quarter trough, the fourth-quarter output was estimated to have grown by only about 5 percent or less, according to some of the economists, as movement of people remained restricted to prevent the deadly coronavirus from further spreading.

As such, 16 of the economists estimated full-year GDP contraction above 9 percent, while the five others projected it at more than 8 percent.