Recession to persist in 1st quarter
While rosy prospects for recovery abound in the near term, the first quarter of 2021 would likely remain under extended recession due to the slow reopening of the economy, the country’s chief economist conceded on Friday.
In a briefing with the Foreign Correspondents Association of the Philippines (Focap), Acting Socioeconomic Planning Secretary Karl Kendrick Chua said nothing significant has changed so far during the first quarter in terms of easing quarantine restrictions, especially given the threat from more contagious COVID-19 variant.
“The biggest area of economic productivity is still in GCQ (general community quarantine),” Chua noted, referring to Metro Manila and neighboring areas that are still struggling to contain the deadly coronavirus.
As such, Chua said gross domestic product (GDP) would only post year-on-year growth during the second quarter, possibly extending the recession for five straight quarters since the first quarter of 2020.
Moving forward, Chua said an increasing number of workers returning to their jobs, more vehicles on the road causing traffic congestion once again and additional infrastructure being built across the country would help improve GDP on a quarter-on-quarter basis.
The gradual reopening of the economy from the most stringent enhanced community quarantine imposed in mid-March to May last year allowed GDP to grow by 8 percent quarter-on-quarter during the July-September period of 2020, and by a slower 5.6 percent in October-December.
Chua said the slower quarter-on-quarter increase in output during the fourth quarter was a result of restrictions that hardly changed compared to the third quarter as the greater Manila area remained under GCQ.
Pointing to the Philippines’ openness to trade and movement of people such as overseas Filipino workers (OFWs), Chua said the earlier economic recovery in neighboring China and Vietnam stood to benefit the export and investment sectors.
Chua had noted that as China’s GDP grew 6.5 percent and Vietnam’s by 4.5 percent last year, merchandise exports to these two countries rose by 13 percent and 30.5 percent, respectively, during the fourth quarter of 2020.
“At the same time, our effort to open more of the economy will allow us to have better access to FDI (foreign direct investment), the technology and the innovation that may come. And this is actually very crucial because the mark of an upper middle-income country is innovation and there’s no way, I think, we can maximize that if we remain closed in terms of foreign ownership,” Chua said. The Philippines is aspiring to move up to upper middle-income status next year.
The state planning agency National Economic and Development Authority (Neda) that Chua heads and the entire economic team had long been pushing for the passage of amendments to the antiquated foreign investment, public service and retail trade liberalization laws in order to attract more foreign capital after the Philippines lagged behind most of its Asean (Association of Southeast Asian Nations) neighbors for decades due to these investment policies—the most restrictive in the region—enshrined in the Constitution.
Early this week, Neda Undersecretary Rosemarie Edillon told members of the Lower House that amending the restrictive constitutional economic provisions and giving the power to restrict or expand foreign ownership to Congress was the right approach.
“According to an earlier World Bank study, no other country in Asean [besides the Philippines] has the restrictions in the Constitution. except for Thailand, but only for mass media. The only concern is how to do it, since opening the Constitution requires a careful approach, inclusive consultation and safeguards to ensure that the objectives are not captured by other motives,” Edillon said.
Citing Chua’s position on the matter, Edillon said since the constitutional amendment may take some time, Congress could pass the three liberalization bills: the Public Service Act, the Retail Trade Liberalization Act and the Foreign Investment Act amendments immediately, since these were urgently needed in this time of the pandemic to attract more investment and create jobs.
“They also complement the Corporate Recovery and Tax Incentives for Enterprises (Create) bill and other reforms we have done like the ‘Build, Build, Build’ infrastructure program and the ease of doing business. If foreign ownership restriction is not relaxed, then investments will still be limited,” Edillon added.
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