Philippine recovery seen by early 2021

MANILA, Philippines — The Philippine economy is expected to start recovering in the second quarter of next year after the country imposed the longest and strictest lockdowns to contain the spread of COVID-19, according to Fitch Solutions Country Risk & Industry Research.

Michael Langham, senior analyst for Asia at Fitch Solutions, said during the Asia Macroeconomic Quarterly Update webinar that the country’s gross domestic product (GDP) would likely rebound in the second quarter of next year as authorities struggle to prevent the further spread of the virus.

“Ultimately, we think that the economy will really begin to rebound maybe in the second quarter of 2021. So our outlook for the Philippine economy is fairly subdued and much will dependon how Philippine authorities continue to implement fiscal stimulus and begin to enact reforms,” Langham said.

Fitch Solutions sees the Philippine economy recovering next year, but at a slower pace of 6.2 instead of 6.5 percent.

For this year, Langham said the GDP is expected to dive deeper and contract by 9.1 instead of two percent.

“We see the Philippine economy contracting quite sharply in 2020 by 9.1 percent. I think it’s a bit more bearish in consensus if the Philippines delays in reopening the economy,” Langham said.

The country slipped into recession as the GDP contracted by a record 16.5 percent in the second quarter from 0.7 percent in the first quarter as the entire Luzon was placed under enhanced community quarantine in the middle of March.

The economy was reopened in June as the National Capital Region (NCR) shifted to general community quarantine, but Metro Manila and nearby provinces reverted to a stricter modified enhanced community quarantine from Aug. 4 to 18 as cases doubled to more than 200,000.

“That’s going to be a continued problem for authorities. We don’t believe they’ve got a handle on the situation,” he said.

Langham pointed out the Philippine economy is heavily dependent on domestic activity, with household consumption accounting for three quarters of the total GDP, and the remaining quarter for fixed capital investment.

The research arm of the Fitch Group said GDP would contract by as much as 10.8 percent if the containment measures in the second quarter is implemented from August to December this year.

Langham cited delays in enacting the  fiscal stimulus package to help restart the economy, which stalled in the first half due to the lockdowns.

“There was a new package announced, but the delays in distributing those funds and the fact that it has come with a quarter of the year left, we think that growth in 2020 is going to suffer,” he said.

Economic managers, through the Development Budget Coordination Committee, see a slower rebound with a GDP growth of 6.5 to 7.5 percent instead of eight to nine percent next year after a deeper contraction of 4.4 to 6.6 percent instead of two to 3.4 percent this year.