UK think tank turns bullish on PH Q2 prospects

The Philippines’ better-than-expected external trade, manufacturing and net sales performance in April despite stricter quarantine in National Capital Region (NCR) Plus would allow a bigger output in the second quarter than the first quarter, UK-based Pantheon Macroeconomics said on Thursday.

“The Philippine economy looks to have miraculously survived the second wave of COVID-19 without any major scars,” Pantheon Macroeconomics senior Asia economist Miguel Chanco said in a report titled “The Philippines Won the Covid Battle—Not the War—in Q2.”

“On our adjustment, the volume of net sales index for April—when cases peaked and antivirus measures were at their toughest—fell by a mere 0.7 percent month-on-month, erasing only half of the 1.4-percent bounce in the previous month. Moreover, the drop was likely in part a function of spending brought forward, leading to the above-trend gain in March,” Chanco noted.

NCR Plus—Metro Manila and the provinces of Bulacan, Cavite, Laguna and Rizal, which accounted for half of gross domestic product (GDP) —reverted to enhanced community quarantine (ECQ) and modified ECQ in April following a surge in COVID-19 cases.

But unlike last year’s ECQ, the latest stringent quarantine imposition allowed economic sectors to operate under minimum health standards.

Together with foreign trade figures for April which were not as bad as expected, Chanco conceded that “our call for a mild double-dip in GDP admittedly no longer holds water.”

“April was as bad as the second quarter could get, and it turned out to be fairly benign, considering the circumstances. The government’s more tailored approach to restrictions appears to have paid off, though mobility indicators also suggest that compliance or enforcement — likely both — was comparatively lax this time around,” he said.

As such, Chanco projected second-quarter GDP would likely grow by 1.8 percent quarter-on-quarter, reversing his previous forecast of a 0.6-percent decline in output compared to the first quarter’s. His quarter-on-quarter growth forecast would be a faster pace than the 0.3-percent increase posted during the first quarter, when GDP contracted by a worse-than-expected 4.2 percent year-on-year.

Chanco said GDP was expected to grow 15 percent year-on-year during the second quarter, owing to base effects from last year’s trough when output shrank by a record 16.9 percent due to the strict COVID-19 lockdown from mid-March to May 2020.

Chanco also upgraded his full-year GDP growth forecast to 6.6 percent — within the government’s downscaled 6-7 percent target — from 5.4 percent.

However, Chanco said “the second half of the year will still be very challenging for the Philippines, despite the close shave in the second quarter.”

“COVID-19 anxieties will continue to weigh on consumer and business confidence. The authorities have eagerly relaxed curbs in recent weeks, resulting in an incomplete compression of the second wave, and a renewed rise in cases… Looking further ahead, herd immunity remains unlikely for another year — at best,” Chanco said.

“The weakness of the labor market and the consequent absence in real wage growth amid stubborn inflation will also continue to hold back spending… Demand for labor clearly is struggling, creating an increasingly wide gap amid the recovery in supply. Job openings have bottomed-out, though they essentially have been stuck at around the third of the pre-COVID-19 norm since the second quarter of last year,” he added.

“Catch-up will be the main theme in the second half, driving both investment and exports, but downside risks prevail.”

“Admittedly, capex probably will get an additional lift from projects being front-loaded ahead of the presidential election in less than a year’s time. This would come at the expense of the first half of 2022, though, and, in any case, the long-run outlook is bleak, judging by the signal from the slump in business loans. Elsewhere, exports are likely to play some catch-up, too, having fallen behind the recovery in regional shipments. The recent stagnation in Vietnam’s exports sends a warning shot, though, that the global recovery may soon peter out,” according to Chanco. —Ben O. de Vera INQ