Gradual recovery seen to begin this month

Mass transportation continuing to operate at a limited capacity is seen as one of the constraints to a faster economic recovery. — REUTERS

Economic managers are hopeful the Philippines will begin its gradual recovery this month, as lockdown restrictions continue to be eased around the country.

At the same time, some economists forecast gross domestic product (GDP) would return to a growth trajectory in the third quarter.

National Economic and Development Authority Acting Secretary Karl Kendrick T. Chua told the House of Representatives Committee on Economic Affairs on Thursday the economic team’s projection of an 8-9% growth in 2021 hinges on a gradual recovery starting July and boost in government spending through a stimulus package.

“The outlook for 2021 is based on major assumptions. Number one, we have gradual recovery starting July of this year and the second is that we also see the public sector or the government increasing spending as a stimulus,” he said.

“If those two are achieved, then the target is (up to) 9% growth next year.”

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said in an online forum on Thursday the economy will recover as it slowly reopens but the pace would vary for different industries.

“The fact is that the economy will recover, but recovering will be uneven. Some sectors may take some time, but others may take quite shortly… Some activities may not be able to take off at this time but there’s some already (that can), maybe about 70% of the economy can move forward,” Mr. Diokno said.

He projected the economy to decline by 5.7-6.7% in the second quarter, after the -0.2% GDP recorded in the first quarter. If this is realized, the Philippine economy will officially enter into a recession for posting two consecutive quarters of contraction.

However, Mr. Diokno expects GDP to still shrink in the third quarter but less than the preceding three months, before bouncing back to growth trajectory by fourth quarter.

Q3 GROWTH?
Meanwhile, economists at the First Metro Investment Corp. (FMIC) and the University of Asia and the Pacific (UA&P) said ending quarantine restrictions for Metro Manila and Calabarzon regions by mid-July will allow companies and workers to return to their “normal daily tasks,” stimulating the economy and allowing for the recovery to begin this quarter.

“We expect positive GDP growth starting Q3,” their June report of The Market Call published Thursday read.

FMIC and UA&P economists said other factors that support their growth projection are the restoration of supply chains that were severely disrupted during lockdown, benign inflation, and the declining number of deaths due to coronavirus disease 2019 (COVID-19).

If positive GDP growth is realized in the third quarter, the economists said the economy could be “close to normalization by Q4” and with a “much brighter scenario” for 2021 if a vaccine will be made available by end-2020.

Metro Manila and some parts of the country remain under general community quarantine (GCQ), while Cebu City is under a strict lockdown.

Finance Secretary Carlos G. Dominguez III has said quarantine restrictions in Metro Manila should be eased further to a modified GCQ “as quickly as possible” to recoup jobs and stimulate the economy that has been in a near standstill since mid-March.

Meanwhile, FMIC and UA&P economists said constraints to faster recovery include mass transportation not operating at full capacity and caution among workers as the virus lingers.

The economists also said the second-quarter GDP data to be released on Aug. 6, the approval of stimulus package and the rate of new deaths will determine how fast the economic rebound would be.

“However, a V-shaped recovery may not ensue unless the government can start spending fast its new stimulus package of some P1.3-trillion (approval may come only by August) and ability of firms to restore and strengthen their supply chains and provide safe work environments for their workers,” they said.

Several stimulus bills to revive the economy are still pending in Congress, which is currently on break and will begin its next regular session on July 27. The proposed amount for spending ranges from P 140 billion under the Bayanihan II bill, up to P1.3 trillion in staggered spending under the ARISE bill or the Accelerated Recovery and Investments Stimulus for the Economy.

At the same time, FMIC and UA&P economists said remittances, a driver of growth as it fuels domestic consumption, will likely “remain bleak in the coming months” as other countries are also affected by the economic shocks caused by the pandemic. “Bigger declines” are expected during the peak of lockdowns overseas last quarter.

They also expect consumer spending to post slower recovery as Filipinos will likely save up for unexpected events such as a second wave of infection occurs, typhoons, and the slow release of financial aid from the government and companies.

“The magnitude in the loss of jobs reported in April will likely not show up again in the next employment survey in July (for release in early September). Indeed, firms have put up stringent health protocols in their workplaces and their workers,” they added.

The Development Budget Coordination Committee (DBCC) projected the economy to contract by 2-3.4% this year.

Across Asia, Fitch Solutions Asia Country Risk Analyst Hui Koon Koh said in a forum that the “second half of 2020 will show gradual improvement in Asian economic activity but the recovery will remain tampered by circumstances and the still present danger of COVID-19 outbreak globally.”

The think tank projects the regional economy to contract by at least one percent this year from the actual four percent growth posted in 2019.

For the Philippines, it maintained its -2% forecast for 2020. — with a report from Luz Wendy T. Noble/By Beatrice M. Laforga, Reporter

Source: Peso Economics