Economists see PH’s longest post-Marcos recession extending to 1st quarter of 2021

MANILA, Philippines—Two economists on Thursday (May 6) said they expected not only a bigger year-on-year contraction in gross domestic product (GDP) in the first quarter of 2021 but also output that is smaller than the fourth quarter of 2020, which would extend the Philippines’ longest recession since the fall of the Marcos dictatorship.

In separate reports, ING Philippines’ senior economist Nicholas Mapa said GDP likely shrank by 3.5 percent year-on-year in the first three months of 2021, while Security Bank Corp. chief economist Robert Dan Roces projected a bigger 5.1-percent drop in real GDP to P4.2 trillion.

The government will report on the first-quarter GDP performance on May 11.

During the first quarter of 2020, GDP decline was only 0.7 percent year-on-year, mainly due to the impact of Taal Volcano’s eruption in January of that year.

Mapa told the Inquirer that his first-quarter projection meant the Philippines’ output from January to March was 0.5-percent smaller than GDP in the October to December 2020 period.

Five straight quarters of GDP contraction would be the longest recession in recent history, or since the time of dictator Ferdinand Marcos, during which the economy shrank by 10 consecutive quarters from 1983 to 1986.

The latest preceding technical recession, or two quarters of contraction, was in 1991, when first-quarter GDP declined by 1.1 percent year-on-year, followed by the 1.9-percent drop in the second quarter of that year.

Roces attributed his forecast to “the observed improvements in the PMI [purchasing managers’ index] remaining in expansion within the quarter, while unemployment averaged above 8 percent or still as elevated as the fourth quarter of 2020.”

“Coming into 2021, the deep scarring from the previous year may have continued to soften household consumption with inflation going up and mobility remaining below the pre-pandemic levels (even before the reimposed ECQ), while both imports and exports slowly contracted in the first months,” Roces added. He was referring to the most stringent enhanced community quarantine in Metro Manila and four neighboring provinces accounting for half of  the country’s GDP from March 29 to April 11.

For Mapa, “domestic consumption remains one of the key sectors of the economy (roughly 70 percent of total GDP) and we expect this sector to have been challenged at the start of the year.”

“Labor market data recently released showed unemployment improved slightly by March but was for the most part still elevated compared to year-ago levels,” Mapa said.

“High levels of both unemployment and underemployment translate to depressed consumption all the more compounded as inflation rose to 4.5 percent in the period. Consumer confidence remains deep in the red and this will be telling in the coming months,” he added.

Base effects from the onset of the COVID-19 pandemic in 2020 and manufacturing gains during the first three months were nonetheless expected to have compensated for the drag on household consumption, Mapa added.

Moving forward, Roces said “growth is expected to improve gradually and will be a function of improved business and consumer confidence, likely from a wider vaccination rollout plus if infrastructure spending does take place in the second half.”

“Election spending should also play some part, although the pandemic may present a shift in how this type of spending is conducted,” Roces said.

“The reimposed lockdowns in the second quarter may complicate the overall growth picture, and the Philippines is likely to miss the 6.5-7.5 percent GDP growth target this year after lockdowns,” he said.

Mapa said he kept his outlook of a “dirty L-shaped” recovery in 2021 as the prolonged and ongoing more stringent quarantine measures would dampen second-quarter prospects.

“We will still see positive growth on a year-on-year basis by the second quarter but we may have to pare down our expectations. With the economy crippled and smarting from the protracted downturn, we expect growth to settle at a lower growth path post the base effect-induced jump in the second quarter of 2021,” Mapa said.

TSB