Philippines remains in recession in first quarter

MANILA, Philippines — The country remained in recession in the first quarter as the resurgence of COVID cases and delayed vaccine rollout prompted the government to reimpose strict lockdowns, essentially putting a lid on economic recovery, top bank economists said.

Security Bank chief economist Robert Dan Roces said gross domestic product (GDP) likely contracted by 5.1 percent in the first quarter, the fifth straight quarter of economic decline.

The Philippines entered into recession – loosely defined as two successive quarters of contraction – when its GDP shrank by a record 17 percent in the second quarter of 2020, following a minimal 0.7 percent slump in the prior quarter.

The economic decline continued until the third and fourth quarters with respective contractions of 11. 6 percent and 8.3 percent, leading to a full-year decline of 9.6 percent.

Roces said there has been observed improvements in the purchasing managers index (PMI) remaining in expansion within the quarter, while unemployment averaged above eight percent or still as elevated in the fourth quarter of last year.

“Coming into 2021, the deep scarring from the previous year may have continued to soften household consumption with inflation going up and mobility remaining below the pre-pandemic levels even before the reimposed enhanced community quarantine, while both imports and exports slowly contracted in the first months,” Roces said.

Malacañang placed NCR and four adjoining provinces under enhanced community quarantine anew from March 29 to April 11 and under modified enhanced community quarantine from April 12 to May 14 amid the resurgence in COVID-19 cases.

Roces expects growth to improve gradually in the quarters ahead, banking on a wider vaccination rollout and higher infrastructure spending in the second half.

Roces said elections spending should also play some part, although the pandemic may present a shift in how this type of spending is conducted.

“The reimposed lockdowns in the second quarter may complicate the overall growth picture, and the Philippines is likely to miss the 6.5 to 7.5 percent GDP growth target this year after lockdowns. The BSP is more likely to keep monetary stimulus in place for the year,” Roces said.

ING Bank senior economist Nicholas Mapa said the country’s GDP contracted at a slower pace of 3.5 percent as the ongoing health crisis continued to curtail economy activity.

Mapa said domestic consumption – one of the key sectors of the economy or roughly 70 percent of total GDP – remained challenged at the start of the year.

He said recent labor market data showed unemployment improved slightly by March but was for the most part still elevated compared to year ago levels.

“High levels of both unemployment and underemployment translate to depressed consumption all the more compounded as inflation rose to 4.5 percent in the period. Consumer confidence remains deep in the red and this will be telling in the coming months,” Mapa said.

Mapa warned the proliferation of new variants alongside the reopening of the economy may have caused the spike but nonetheless, the sudden surge in hospitalization prompted authorities to restrict movement and shutdown some operations.

“We continue to hold on to our expectation for a dirty-L recovery with the brunt of the enhanced community quarantine and modified enhanced community quarantine impact taking root in the second quarter. We will still see positive growth on a year-on-year basis by the second quarter but we may have to pare down our expectations,” Mapa said.

Economic managers, through the Development Budget Coordination Committee, are scheduled to meet this month to review the government’s 6.5 to 7.5 percent GDP growth target, taking into consideration the recent imposition of stricter lockdown and quarantine measures.