New COVID-19 lockdown squeezes juice out of manufacturing in April

MANILA, Philippines—The more stringent COVID-19 quarantine reimposed in Metro Manila and four neighboring provinces accounting for half of the economy cut short in April the manufacturing growth posted in the first quarter of 2021 which prompted the country’s chief economist on Monday (May 3) to urge gradual easing of restrictions to meet this year’s growth goal.

Socioeconomic Planning Secretary Karl Kendrick Chua told ABS-CBN News Channel that the National Capital Region (NCR) Plus needed to move out of the current modified enhanced community quarantine (MECQ) by the middle or end of this month so that gross domestic product (GDP) could grow by the targeted 6.5-7.5 percent in 2021.

NCR Plus, which included the provinces of Bulacan, Cavite, Laguna and Rizal, reverted to the ongoing MECQ and had been placed under two weeks of the strictest enhanced community quarantine (ECQ) before the end of March due to a surge in COVID-19 cases.

Chua, who heads the state planning agency National Economic and Development Authority (Neda), said COVID-19 risk management, the P2.5-trillion fiscal measures for economic recovery and mass vaccination would help the Philippines rebound from its worst post-war recession. Amid the pandemic, GDP shrank by a record 9.6 percent in 2020, shedding millions of jobs.

On Monday, London-based global information provider IHS Markit Ltd. reported that the Philippines’ purchasing managers’ index (PMI) fell to 49 last month—below 50 meant deterioration in manufacturing activities. From January to March, PMI grew and stayed above the 50 level.

“April survey data revealed a setback for the Filipino economy, with operating conditions falling back into contraction territory after only one full quarter of growth,” said IHS Markit economist Shreeya Patel.

“Tightening restrictions led to another round of factory and business closures, with output particularly hard-hit. Meanwhile, labor force cuts extended into the second quarter of 2021,” Patel said.

“Supply-side pressures and rising costs were again evident throughout the latest survey period with material shortages and transportation bottlenecks widely reported,” Patel added.

“Firms will hope that these issues are resolved, but with the full impact of the Suez blockage yet to take effect, the disruption to global trade is expected to reverberate,” Patel said.

“On the brighter side, policymakers have stressed the importance of the vaccination program in bringing a return to normality and while the initial progression was somewhat slow, the rollout seems to have gathered pace in recent weeks,” according to Patel.

In a note to clients, Capital Economics Asia economist Alex Holmes said “a large virus outbreak [in the Philippines] is likely to have disrupted industry.”

For ING Philippines senior economist Nicholas Mapa, “with the so-called NCR Plus area still under partial lockdown in May while new daily infections remain elevated, we can expect another month of [PMI] contraction for May, especially if the MECQ status remains in place for the rest of the month.”

“Community quarantine measures are indeed costly and can almost single-handedly knock the wind out of a manufacturing bounce back and, in turn, the economic recovery,” Mapa said.

“Authorities have begun to tweak quarantine restrictions in a bid to spark some economic activity in an attempt to balance virus mitigation and commerce but oftentimes we’ve noted how the nature of the virus would make this a very complicated and delicate matter,” he said in a report.

“The direction of the PMI index and manufacturing as a whole will take its cue from the level of community quarantine in place as well as domestic demand dynamics, which in turn will be influenced largely by the state of the public health crisis,” he said.

“Thus we reiterate that the public health crisis and the economic crisis remain intertwined and any hopes of a recovery will necessitate getting a hold of the crisis beforehand,” Mapa added.

TSB