Tighter COVID curbs seen to extend recession
The tighter restrictions imposed to contain the recent surge in COVID-19 infections could result in a “double-dip recession” in the Philippines, UK-based Pantheon Macroeconomics said on Tuesday.
“The second wave of COVID-19 in the Philippines has forced a U-turn in the government’s reopening plans, threatening the durability of the recovery heading into the second quarter,” Pantheon Macroeconomics senior Asia economist Miguel Chanco said in a report titled “The Philippines is Facing a Real Risk of a Double-Dip Recession.”
“The most economically debilitating curbs include a ban on indoor dining and mass gatherings—an area which had enjoyed some relaxation only recently in mid-February; a stay-at-home order that includes anyone below 18 years of age, up from 15 previously, and the prohibition of nonessential travel into and out of GCQ (general community quarantine) regions,” Chanco said.
While consumption largely held up from January to March following the Christmas holiday season before 2020 ended, Chanco projected a slower 1 percent quarter-on-quarter gross domestic product (GDP) growth in the first quarter compared to his previous forecast of 1.2-percent increase in output.
Chanco said GDP likely contracted by a faster 2 percent year-on-year during the first three months compared to the 0.7-percent contraction a year ago.
Consumption slump
Chanco said consumption was expected to further weaken in the second quarter as more stringent quarantine restrictions could spill over.
“Most of the economic damage which will be caused by the second wave and the consequent tightening of rules will fall in the second quarter, even though the stricter two-week period affects only four days in April. The comparatively modest new curbs and their short timeframe probably reflect a hesitancy to go harder now that vaccines are being rolled out,” Chanco said.
“We reckon, however, that the rules will be both tightened and lengthened, eating much more into the second quarter. The Oxford Stringency Index has yet to reflect the new regulations, but we doubt they will push the gauge up to where it was in early August last year when the first wave peaked. Back then, Manila and a handful of other regions were placed under the much tougher modified enhanced community quarantine (MECQ) regime. A creep towards de facto MECQ in the worst-hit areas looks inevitable, judging by the intensity of the current outbreak,” Chanco added.
Chanco said the prolonged and potentially stricter quarantine coupled with typically risk-averse Filipinos would cut consumption by 1 percent in the second quarter compared to first-quarter consumer spending.
“As a result, [quarter-on-quarter growth in] GDP likely will be flat and representing a stalling recovery, despite the 15.2-percent year-over-year [growth] this would yield” for the second quarter, Chanco said. To recall, GDP fell by a record 16.9 percent year-on-year in the second quarter of 2020 due to the enhanced community quarantine (ECQ) that stopped 75 percent of the economy from mid-March to May last year.
For Chanco, only by the middle of 2021 could recovery start, “assuming the second wave de-escalates and the vaccine drive speeds up markedly.”
“This would set the stage for consumption—and the broader economy—to rebuild momentum quickly in the third quarter,” Chanco said.
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