MANILA, Philippines — Think tanks are now looking at a deeper economic slump for the Philippines this year after the country slipped into a recession with a record 16.5 percent gross domestic product (GDP) contraction in the second quarter.
In its latest commentary, Fitch Solutions Country Risk & Industry Research, the research arm of the Fitch Group, further lowered its GDP forecast for the Philippines to a 9.1 percent contraction instead of an earlier two percent estimate.
“The Philippine economy is set for a painful recession in 2020, as the country struggles to manage the COVID-19 pandemic. In Q2, real GDP growth came in at -16.5 percent year-on-year, from a revised down -0.7 percent contraction in Q1,” Fitch Solutions said.
It said lockdown measures implemented through the second quarter to contain the spread of the coronavirus domestically stifled economic activity considerably, with consumption restricted and capital investment effectively halted through the period.
With another surge in COVID-19 cases in the third quarter, Fitch Solutions said the recovery in economic activity in the second half now looks highly unlikely.
“However, with parts of the economy being put back into lockdown and fiscal expenditure expected to be directed to social welfare and loan guarantee programs through H2, the economy will face a delayed recovery,” it said.
In a downside scenario wherein the economy faces similar confinement measures through August to December, Fitch Solutions said GDP is seen contracting by as much as 10.8 percent.
Jun Neri, lead economist at Bank of the Philippine Islands, is hoping the worse-than-expected contraction in the second quarter would be the trough for the economy and the negative prints for third and fourth quarters would be milder than the 16.5 percent decline in the second quarter.
Neri said BPI has revised its full year GDP projection to an eight percent contraction instead of 5.2 percent.
“All subcomponents on the spending side of the economy will likely drop sharply except for net exports and government outlays. Meanwhile, all production sectors will likely see the worst full-year declines since the 1980s,” Neri said.
ING Bank Manila senior economist Nicholas Mapa said the country’s GDP is likely to contract by seven percent this year as the economy is now in shambles as consumption foundation crumbled.
For the first half of the year, the country’s GDP shrank by nine percent, prompting the Development Budget Coordination Committee (DBCC) to foresee a deeper contraction of 5.5 percent instead of two to 3.4 percent this year and a slower recovery with a growth of 6.5 to 7.5 percent instead of eight to nine percent next year.
“COVID-19 and the lockdowns that followed have completely knocked out Filipino household spending, rendering the once robust spending machine a shell of its former self,” Mapa said.
The Dutch financial giant is looking at a dirty L-shaped recovery with a positive growth returning on a base effect-induced bounce in 2021, with the economy entering a lower growth trajectory of 3.5 to 4.5 percent.
“The economy however was knocked out as a result of the forced shutdown during community quarantines with GDP dropping by nine percent for the first 6 rounds of the 12-round boxing match,” Mapa said.