Lockdown extension detrimental to still wobbly economy, experts say

Despite exiting five straight quarters of economic contraction, the Philippines is not yet out of the woods as rising COVID-19 cases may prompt the government to extend the enhanced community quarantine (ECQ) in Metro Manila beyond Aug. 20, according to economists.

Citi economist for the Philippines Nalin Chutchotitham said his firm was expecting the country’s gross domestic product (GDP) to grow by 4.9 percent this year, a reversal of last year’s contraction of 9.1 percent, but noted downside risks from a potential prolonged lockdown. For 2022, Citi sees the economy growing at a faster pace of 6.8 percent.

Citi also believes the Bangko Sentral ng Pilipinas will keep its overnight borrowing rate unchanged at a record-low 2 percent through at least mid-2022, citing expectations of manageable inflation in the second half.

Romeo Bernardo, economist at New York-based think tank Global Source, also agreed the lockdown could be extended now that the Philippines has been classified as “high risk” given the high transmissibility of the Delta variant and the rapid rise in infections in the past two weeks.

“We will be reviewing our 4 percent GDP forecast for the year based on developments on the health front in the coming weeks, including vaccination progress,” he said.

Better than forecast

Coming from a low base last year when lockdown measures were at their tightest, GDP expanded 11.8 percent year-on-year in the second quarter, better than the 10.9-percent median forecast in a Bloomberg survey. However, GDP contracted by 1.3 percent compared to the first quarter due to renewed lockdown measures for most of the second quarter.

“Despite better-than-expected second quarter GDP performance, there remains downside risks for third quarter and fourth quarter due to renewed lockdown,” Citi’s Chutchotitham said in a research note titled “Q2 GDP Shows Gradual Recovery on Track, but Not Yet Out of the Woods.”

“Risk of ECQ extension remains present, too. So far, the seven-day average new infections have climbed to nearly 9,000 cases as of 8 August, from around 6,500 cases at end-July, a tad below the mid-April peak of around 10,800 cases,” the economist said.

The economist noted the country’s seasonally adjusted GDP remained about 9 percent off its pre-COVID level in the fourth quarter of 2019, thereby needing “substantial catch-up.”

“Considering the reimposition of lockdown measures last week due to the spread of the Delta variant, the question in economic forecasters’ minds is whether third quarter GDP will improve or worsen further. The answer depends on how long current restrictions will be in place,” Bernardo also said.

“So far, the signals of a quick economic reopening are not good, although a decision to extend the ECQ still depends on whether the infection curve can be flattened over the next two weeks,” he added. INQ