Coronavirus sets economy for deeper 2020 dive, strong bounce-back
MANILA, Philippines — The Philippine economy is all but sure to take a beating from the coronavirus disease-2019 (COVID-19) pandemic this year, before staging a strong bounce-back in 2021, a scenario the government is fulfilling with a smaller budget next year.
Growth, as measured by gross domestic product (GDP), is targeted to shrink between 2-3.4% this year, which if realized, will mark the first annual contraction since the Asian financial crisis battered the economy in 1998, economic managers said in a statement.
The bleaker assumptions, decided by the interagency Development Budget Coordination Committee (DBCC), were all starting to unfold, with the first-quarter GDP already contracting 0.2% year-on-year, as officials see a recession happening as early as this quarter.
“These adjustments reflect the Duterte administration’s priorities of saving lives and protecting communities, while providing support to vulnerable groups and stimulating the economy to create jobs and support growth,” DBCC said on Wednesday.
For next year, GDP is expected to swing back to growth between 7.1-8.1%, a recovery predicated on “regaining confidence” in the private sector and “restoring employment rates to pre-crisis levels." Economists find the new projections acceptable.
“I think that this is still manageable and doable for the economy,” said Ruben Carlo Asuncion, chief economist at UnionBank of the Philippines, in a text message.
Lower 2021 budget
For this year, state interventions against the pandemic would boost spending to P4.18 trillion. With revenues sagging 17.7%, the budget deficit is seen to widen to P1.56 trillion by year-end, equivalent to 8.1% of GDP.
Higher deficits mean bigger debts poised to hit “around 50%” of GDP, which if realized will be the widest since 2010. From there, Budget Undersecretary Laura Pascua said the plan is “to return gradually to normality” beginning with a largely contained spending plan for 2021, just when the post-pandemic recovery would have started.
For 2021, economic managers are proposing to Congress a budget of P4.1 trillion, down from the pre-pandemic proposal of P4.6 trillion, and slightly lower than this year’s P4.18 outlay. Pascua said by next year, the deficit should start to go down to 6% of GDP.
Finance Assistant Secretary Ma. Teresa Habitan admitted the government would spend “relatively more” in 2020 than 2021 when the recovery is seen to just starting, but indicated this should not be a cause for concern.
“Since some of the projects supposed to be started in 2020 will be moved or have been suspended, the resumption will likely happen in 2021 or near 2021, but at a much less progressed phased,” Habitan said in an online exchange.
Trade down, inflation manageable
Based on DBCC’s latest figures, the price of Dubai crude— the benchmark for Asian oil buyers— is projected to trade between $23-$38 a barrel this year, down from $55-$70 seen last December. The peso is seen to trade slightly stronger at P50-P54 to a dollar this year.
Subdued global oil prices and a stronger peso prompted the Bangko Sentral ng Pilipinas to lower its inflation target to 1.75-3.75% this year. The new goal is down from the original 2-4%, which was maintained for next year and 2022.
Lackluster trade would also likely persist, contributing to economic slump. Goods exports will post a “sharp contraction” of 4%, while imports would likely dive 5.5%, assumptions worse than the original 4% and 8% growth, respectively.
“The DBCC reiterated its commitment to work with the whole of government in responding to challenges brought about by COVID-19 while helping drive a rapid economic recovery…,” it said.
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