Sans lockdown, economy to shrink still in Q3 — BSP
MANILA, Philippines — Even with lockdowns rolled back, the local economy is still poised to contract further this quarter and sink deeper into recession, the Bangko Sentral ng Pilipinas (BSP) said on Thursday.
“The preliminary nowcast for GDP growth indicates that the economy could contract further in Q3 2020,” the Monetary Board, BSP’s policymaking body, said.
“Domestic economic activity is projected to contract at a slower pace in the remaining quarters of 2020 before recovering in 2021 and 2022,” they added.
The projection is contained on the highlights of the Monetary Board meeting last Aug. 20 which was just released on Thursday. At that meeting, the BSP paused from further easing interest rates, already in their record-lows in a bid to encourage borrowers to borrow funds and boost economic activity.
BSP said that while movement restrictions had been eased since June, “further deterioration” in industry and services sectors would keep the economy down for the time being.
Gross domestic product (GDP) shrank 16.5% in the second quarter, the worst on record, after lockdown measures to control the coronavirus spread sapped consumer and investor confidence, triggering massive business shutdowns and layoffs.
From January to June, GDP sank 9% on average, although expected improvements in the last two quarters of the year is seen to at least temper the decline to 5.5% by yearend, as per the government’s assumptions.
For the Monetary Board, prospects remain bleak if various economic metrics will be considered. BSP said while manufacturing have shown some signs of rebound, “momentum remained disrupted” with the Purchasing Managers’ Index still at contraction level of 45 in July.
“At the same time, limited improvements in mobility indicators suggest that the public is opting to stay at home, which could affect retail sales and spending for other non-essentials, the same factors that pulled down consumption growth in the previous quarter,” BSP explained.
Proof of dismal demand was the decrease in oil prices last Sept. 15 despite a 10% tariff imposed by the government on imported fuel. Even utility charges went down as demand for electricity remained weak.
On the other hand, only the farm sector expanded in the second quarter, tallying 1.6% from -0.3 in the last quarter despite disruptions in the delivery and supply chain. The growth in this segment is expected to persist.
With companies now back in operations, BSP was also optimistic of a pick-up in bank lending, which grew 6.7% year-on-year in July, the slowest pace in over a decade. The central bank said the 175 basis-point cut on policy rates since February has not been fully reflected on bank rates yet, hence, more scope for further lowering of rates— and with it, more lending activity.
“Credit growth is expected to improve over the coming months,” the central bank said.
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