Extended lockdown may lead to recession, says ING

MANILA, Philippines — Dutch financial giant ING Bank expects the economy to contract this year if the month-long enhanced community quarantine in Luzon is extended and if the national government fails to implement a fiscal punch needed to combat the coronavirus disease 2019 or COVID-19 outbreak.

Nicholas Mapa, senior economist at ING Bank Manila, said the economy may contract by 0.1 percent if the enhanced community quarantine is extended until May and if there is meager fiscal response equivalent to 0.1 percent of gross domestic product (GDP) to cushion the impact of the pandemic.

“We have revised our previous growth forecast to take into account the length of enhanced community quarantine and the size and scope of government’s rescue package and we see the wide range of economic outcomes based on the choice we make today,” Mapa said.

The economy, he said, could grow by only 1.8 percent if the enhanced community quarantine is extended by two weeks and by 2.6 percent if the lockdown is kept at one month.

However, Mapa said the Philippines could post a GDP growth of 5.3 percent if the government adopts a substantial fiscal punch equivalent to 1.5 percent of GDP and if the current one month lockdown is retained.

Socioeconomic Planning Secretary Ernesto Pernia has announced a three-phased approach to recovery wherein the first phase includes the implementation of the enhanced community quarantine, enforcement of social distancing and the public awareness campaign wash hands.

On the other hand, the second phase focuses on maintaining and bolstering consumer and business confidence during and after the crisis with Bangko Sentral ng Pilipinas (BSP) rolling out massive monetary stimulus and the national government pledging programs such as income replacement such as cash transfers for lower-income households as well as loan and liquidity support to both business and consumers.

The third phase, meanwhile, deals with preparing for life after the crisis with the Philippines needing to gear up for life after pandemic that would undoubtedly usher in a new normal.

The BSP has already announced a P300 billion stimulus package involving the purchase of government securities from the Bureau of the Treasury (BTr), the lowering of the reserve requirement ratio by 200 basis points releasing P200 billion into the financial system, the reduction of interest rates by 50 basis points on March 19, among others.

“The size and scope of the COVID-19 rescue package will be crucial in determining whether or not the Philippines is able to weather this public health crisis which has induced a substantial economic challenge,” Mapa said.

Mapa said the government rescue package should cover income replacement, tax forbearance as well as loan and liquidity support.

“The Philippines is fighting a battle not seen perhaps in our lifetimes. The public health crisis that threatens our health and lives has real and painful consequences,” Mapa said.