UK think tank sees 1.5 percent GDP decline in 2nd quarter of 2021

MANILA, Philippines—The second quarter of 2021 may see a 1.5 percent decline in gross domestic product (GDP), ending a quarter-on-quarter economic growth eked out since the middle of 2020, as the return to quarantine measures weaken consumer spending, according to the UK-based think tank Pantheon Macroeconomics on Monday (April 12).

While GDP likely crawled to 2.2 percent from January to March 2021 compared to October to December 2020, Miguel Chanco, Pantheon Macroeconomics senior Asia economist, said second quarter GDP could fall by 1.5 percent compared to first quarter output.

Following the trough in the second quarter of 2020 due to the most stringent lockdown that sent 75 percent of the economy to paralysis, GDP rose 8 percent quarter-on-quarter in the third quarter of 2020, followed by 5.6-percent expansion in the same year’s fourth quarter.

The slow quarter-on-quarter increase in output reflected the sluggish reopening of the economy, and it did not help that COVID-19 cases surged in recent days, prompting another round of lockdowns in Metro Manila and four nearby provinces that account for half of GDP.

Starting this week, the less stringent modified enhanced community quarantine (MECQ) was imposed in Metro Manila, Bulacan, Cavite, Laguna and Rizal or “National Capital Region (NCR) Plus.”

In a report titled “A Double-Dip in the Philippines is Now Looking Inevitable,” Chanco said “household spending in the Philippines held up better than we expected in the first quarter, compelling an upgrade to our GDP forecast” from only 1 percent quarter-on-quarter previously.

But on a year-on-year basis, Pantheon Macroeconomics projected GDP to have contracted by 3 percent—bigger than the 0.7 percent in 2020 and extending the recession to five straight quarters.

While private consumption could have grown 2.5 percent from January to March 2021 compared to consumer spending from October to December 2020, Chanco said “a number of factors have weighed on households since the recovery began, including a marked acceleration in inflation, a stagnating labor market, and the massive drawdown in savings last year.”

Due to expensive food, especially pork, headline inflation averaged 4.5 percent during the first quarter—above the 2 to 4 percent target band. Unemployment at the start of 2021 remained the highest in 16 years, with 4.2 million FIlipinos jobless in February.

Also, “the likely strong hit from the rapidly escalating second wave of COVID-19 implies that the recovery in household spending may need to start from square one,” Chanco added.

Chanco projected private consumption to slide by 7 percent quarter-on-quarter from April to June 2021 especially if a “meaningful relaxation of curbs” wouldn’t happen by May at the earliest.

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno told a TV interview on Monday that the challenges wrought by rampaging infections may temper economic growth to 6 to 7 percent this year compared to the government’s target range of 6.5 to 7.5 percent.

Acting Socioeconomic Planning Secretary Karl Kendrick Chua said he had suggested that the economic team await the first-quarter GDP data before it decides whether to downscale this year’s growth goal. The first-quarter GDP report will be out on May 11.

TSB