Longer quarantine, faster inflation may keep PH deep in recession in Q1 | Inquirer Business

Longer quarantine, faster inflation may keep PH deep in recession in Q1

By: - Reporter / @bendeveraINQ
/ 05:30 AM January 29, 2021

MANILA, Philippines — The government’s chief economist warned of a possible slo­wer econo­mic recovery this year as some parts of the country might revert to strict quarantine due to the emergence of more contagious COVID-19 variants.

Asked by the Inquirer if a prolonged quarantine that restricts movement here and abroad would keep the economy in recession up to the first quarter of 2021, Acting Socioeconomic Planning Secretary Karl Kendrick Chua replied: “Travel restrictions will contribute to lower-than-normal GDP (gross domestic product) in 2021.”


Presidential spokesperson Harry Roque told a press briefing that two regions — the Cordillera Administrative Region and Davao Region — were candidates for quarantine escalation as their bed utilization rates recently rose amid increasing infections, partly due to the new strains of the deadly coronavirus.

Chua, who heads state planning agency National Econo­mic and Development Authority (Neda), had been pushing for the further reopening of the economy subject to minimum health standards while shunning a return to more stringent lockdown.


The government targets a 6.5- to 7.5-percent growth in 2021 following the record postwar recession that slashed GDP by 9.5 percent in 2020 amid the COVID-19 pandemic.

At a press conference, Chua said the delay in allowing younger Filipinos in low-risk areas under modified general community quarantine to leave their homes to dine out and shop with their families would impact on consumption recovery.

The President’s decision to keep minors at home also delayed the pilot of face-to-face classes in schools located in areas with low cases, Chua added. The Neda chief nonetheless said the President made “the right decision” to postpone the plan while health and economic authorities monitor the new virus strains.

In a report, ING senior economist Nicholas Mapa said the “big dip” in GDP last year would extend until this year as he projected the first quarter figure to shrink by 5.4 percent year-on-year, bigger than the 0.7-percent contraction a year ago at the onset of the pandemic.

“ING expects GDP to remain in contraction in the first quarter of 2021 before posting a substantial 13-percent rise by the second quarter, mainly on base effects. Household spending, the main growth engine of the economy, will likely stay in low gear with the unemployment rate at 8.7 percent with prospects for a quick turnaround in consumption confounded further by the return of inflation, which is expected to breach the Bangko Sentral ng Pilipinas’ (BSP) inflation target as early as April,” Mapa said.

As food prices remained elevated in January, BDO Unibank chief market strategist Jonathan Ravelas projected headline inflation at a faster 3.6 percent year-on-year, while Morgan Stanley Research’s forecast was 3.5 percent or similar to last December’s 22-month high rate.

Despite expectations of faster inflation, the weak recovery would force the BSP to further cut the policy rate this year from the record-low 2 percent, Capital Economics senior Asia economist Gareth Leather, Asia economist Alex Holmes, and research assistant Oliver Bryne said in a Jan. 27 report.


“While higher oil price inflation will push up the headline rate, the weakness of the economy will keep underlying price pressures subdued and inflation should stay within the BSP’s 2-4 percent target band,” Capital Economics said.

The International Monetary Fund (IMF) also hiked its inflation forecast for 2021 to an average of 3.1 percent from 3 percent previously, IMF resident representative for the Philippines Yongzheng Yang said.

For Mapa, “with only a modest pickup in government outlays expected in 2021 and with the trade balance forecast to remain in deficit, we do not see a stark pickup in economic activity with GDP growth powered mainly by base effects with the economy still lacking substantial momentum to drive growth back to the 6-percent level.”

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TAGS: COVID-19 variants, economy, Gross Domestic Product, Inflation, Secretary Karl Kendrick Chua
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