Fiscal spending sought to jumpstart PH economy as ‘bubble’ seen to delay recovery until late 2022

MANILA, Philippines—A more robust recovery of the Philippine economy may have to wait until the end of 2022 as the return of stricter lockdown measures in the next two weeks will likely affect consumer confidence adversely.

Thus said ING Bank Manila senior economist Nicholas Mapa who added that the country’s gross domestic product will likely contract again in the first three months of 2021, extending the recession to five straight quarters.

“Base effects will ensure that second quarter GDP will post ‘growth’ but only by virtue of how steep a drop was posted during the height of the enhanced community quarantine last year,” he said in an email to reporters on Tuesday.

“Despite the implicit guarantee of growth this year, authorities and analysts remain cognizant of the fact that the economy has stalled and the once zooming economy is now sitting idle in the driveway,” he added.

The government reimposed curbs on the movement of people for two weeks starting last Monday (March 22) to slow the surge of COVID-19 cases attributed to relaxed controls in recent months.

The so-called “bubble” around Metro Manila and its immediate environs — along with added restrictions on business operations and social activities — were expected to adversely impact the economy once more, but to a lesser degree than 2020’s hard lockdown.

Mapa said the resumption of stricter lockdown measures will set back the Philippine comeback story a couple more months as business activity is curtailed and already fragile consumer confidence takes yet another blow.

Economists had originally expected the economy to return to pre-pandemic GDP levels by the third quarter of 2022, but the two-week bubble effectively pushes that back to fourth quarter of 2022.

The ING economist pointed out that authorities have attempted several variants of lockdown “oftentimes being neither here nor there, half open and half closed with neither the economy nor public health fully recovering.”

He said authorities currently prefer the method of trying to restart the country’s economic engine through a “push start” — deploying modest fiscal spending with a mix of structural reforms in the hopes that the vehicle would start itself, shelling out the bare minimum to preserve fiscal metrics.

“The strategy of fiscal prudence has indeed kept debt watchers happy, with the PHL retaining its credit rating amidst ‘a sea of downgrades’,” Mapa said. “However, the overall result is that economy continues to sit idle on the driveway.”

Instead, he suggested that more aggressive fiscal spending, including direct cash infusions to firms and grants to small businesses, would be more effective in restoring the economy to its former growth trajectory.

“With monetary policy hitting the inflation wall early in 2021, the only move the ‘whole of government approach’ may have left is to go for the ‘jump start’ — a move that would be viewed as costly but one that may be more effective than what has currently been rolled out,” he said.

TSB