Long recovery seen as gov’t spending fails to offset Q3 consumption slump

The Philippines’ recovery from the crippling impact of the coronavirus pandemic on the economy may take longer than expected after the government revealed that third-quarter gross domestic product (GDP) contracted by more than what analysts were expecting.

According to ING Bank Manila senior economist Nicholas Mapa, any bounce back from the slump would likely be constrained by consumers’ concerns about their job prospects, especially with the number of out-of-work Filipinos still stubbornly high.

“With unemployment still elevated at 10 percent and business sentiment negative according to the Bangko Sentral ng Pilipinas (BSP), we do not expect a quick rebound in growth with GDP remaining in negative territory until a base effect-induced bounce in the second quarter of 2022,” he said.

In particular, the economist explained that many people remained hesitant to spend for nonessential items, especially with the virus still posing a risk to the broader public health scene.

“We also highlight the sustained elevated number of COVID-19 daily infections, which may increase in the coming months with authorities planning to relax lockdown measures further,” Mapa said. “The persistent threat of the virus will likely sap consumption appetite and keep investment outlays at bay.”

On Tuesday, the government announced that the Philippine economy contracted by 11.5 percent, a more severe downturn compared to median estimates by analysts.

The ING Bank economist noted that, on the demand side, government spending was the “lone bright spot,” managing to post positive growth of 5.8 percent, while key sectors such as household spending fell by 9.3 percent and capital formation plunged a 41.6 percent.

“For the first nine months through to September, gross domestic product fell by 10 percent with fourth-quarter GDP expected to remain in contraction,” he said.

Authorities are aiming to relax lockdown measures further before the end of the year to help foster a quicker recovery, but “worrisome trends” in consumption and investments paint a different picture, according to Mapa.

In an emailed note to the press, he explained that household consumption, which delivers the bulk of economic activity, would likely be handicapped in the coming months given the challenging labor market while bank lending slowed to single-digit growth, signaling a parallel slowdown in investment momentum.

“Government spending was the lone bright spot in third quarter GDP, however, we expect this sector to contract in the fourth quarter as authorities rein in spending to limit pressure on the deficit-to-GDP ratio,” he said.

Meanwhile, Congress has yet to pass the 2021 budget, which if delayed could make next year’s recovery even more of a challenge.

Mapa said he expected economic output to contract by 11.9 percent in the fourth quarter and to shrink by an average of 10.8 percent for the entire 2020. INQ