Surging COVID-19 cases, tighter restrictions to further delay recovery

The recent surge in COVID-19 infections and more localized lockdowns to control the disease’s spread are seen further narrowing the meager quarter-on-quarter growth expected for the first three months of the year and widening the projected year-on-year drop in first-quarter gross domestic product (GDP).

“The curfews to be imposed in Metro Manila could potentially be a game-changer, further delaying the economy’s full recovery… Much will depend on how strictly they are enforced and how closely the public abides by them. The Philippines isn’t immune to lockdown fatigue, and the recent start of vaccinations may convince a segment of the population that things are at least moving in the right direction,” Miguel Chanco, senior Asia economist at UK-based Pantheon Macroeconomics, told the Inquirer in an e-mail on Friday.

‘Double-dip’

In a March 11 report, Chanco projected the Philippines’ GDP to contract by 1.8 percent year-on-year in the first quarter, which meant five straight quarters of economic downturn.

Outbreaks being recorded in recent weeks mainly due to new virus variants “will dampen the pace of the recovery in the first half of this year—at best—and, at worst, it will result in a shallow double-dip in GDP, while pushing back the reopening to the third quarter,” Chanco said.

As such, Chanco expected the quarter-on-quarter GDP growth to further soften to 1.2 percent in the first quarter and 0.8 percent in the second quarter.

To recall, GDP continued to grow quarter-on-quarter since the trough in the second quarter of 2020 amid the most stringent COVID-19 lockdown imposed back then, although slowing from 8-percent growth during the third quarter to 5.6 percent in the fourth quarter of last year. The government had been closely watching the quarter-on-quarter increase in output as it reflected how business and consumer confidence were recovering amid gradual easing of quarantine restrictions.

But Karl Kendrick Chua, the acting socioeconomic planning secretary, earlier lamented the reopening of the economy at the start of 2021 had been “slow.”

Chanco was also worried about elevated inflation, which was “eating more of households’ purchasing power.”

“Overall, the recovery in consumption will struggle in the first half of this year, compared with the respectable bounce in the second half of 2020. Not only are new headwinds surfacing, but households also came into this year with little savings left to spend and with the strength of the peso holding back growth in remittances in local currency terms,” Chanco said.

Downgraded target

Also on Friday, London-based Capital Economics slashed its 2021 growth projection for the Philippines to 9.5 percent from the previous forecast of 11 percent. The downgraded target nonetheless remained rosier than the government’s conservative 6.5 to 7.5 percent growth target for this year.

Prior to the new forecast, Capital Economics was “assuming a smooth downtrend in the case load and a gradual loosening of restrictions,” its Asia economist Alex Holmes told the Inquirer Friday.

Disappointing output

“Unfortunately, it looks like [the Philippines was] on the cusp of another rise in cases. So we’ve set back our expectations for the recovery in private consumption,” Holmes said.

In their March 12 report, Holmes and Capital Economics senior Asia economist Gareth Leather also pointed to “disappointing” January factory output, exports and employment data reported by the government last week, such that their “previous expectations for the recovery now look too upbeat.”

The latest government data showed the jobless rate of 8.7 percent was a 16-year high among the January labor force survey rounds; the 16.7-percent drop in factory output worsened compared to a year and a month ago levels; and merchandise exports reverted to 5.2 percent year-on-year decline.

For his part, Chanco was not worried about the weak exports at the start of the year. “Korean trade numbers, which serve as a fairly reliable leading indicator for global trade flows, suggest that the recovery in international trade remains robust. As such, I expect Philippine exports to stage a relatively quick rebound from January,” he explained.

But in the case of imports, which slid year-on-year for 21 straight months up to January, Chanco said “the ongoing and deep contractions [reflected] the abysmal state of domestic demand.” INQ