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Business

Q2 GDP growth fastest in 32 years

Louise Maureen Simeon - The Philippine Star
Q2 GDP growth fastest in 32 years
The Philippine economy, as measured by the gross domestic product, jumped 11.8 percent in the second quarter, its highest in 32 years since the 12 percent growth in the fourth quarter of 1988.
KJ Rosales, file

Phl exits recession

MANILA, Philippines — The Philippines found its way out of recession on a record growth in three decades, but economists said recovery remains nowhere near in sight with the return to lockdown in economic areas, particularly Metro Manila.

The Philippine economy, as measured by the gross domestic product (GDP), jumped 11.8 percent in the second quarter, its highest in 32 years since the 12 percent growth in the fourth quarter of 1988.

The jump in GDP, however, was due largely to low base effects after the economy contracted by a record 17 percent in the same period last year.

Also, on a quarterly basis, GDP shrank 1.3 percent from the first quarter following the second round of strict community quarantines imposed in April and May.

Still, with the second quarter growth, the Philippines finally exited the pandemic-induced recession that it went through last year. But the dark days of an economy in dire need of recovery are far from over.

Ateneo De Manila University economist Leonardo Lanzona said the economy is still a long way from where it was before COVID even with the significant leap in GDP.

The industry and services sectors both bounced back at 20.8 percent and 9.6 percent, respectively. But the agriculture sector slipped 0.1 percent as the African swine fever continued to drag overall output.

“The crucial question is whether we are transitioning away from the low to the high productivity sectors. The service sector, which is mainly characterized by informality and low-quality jobs, grew while agriculture fell,” Lanzona said. “These are not indications of a smooth and sustainable recovery. The industry sector may have benefited from reduced lockdown restrictions during the period, but now has to contend with greater quarantine constraints in the coming months.”

However, Socioeconomic Planning Secretary Karl Chua insisted the economy’s robust performance during the period was driven by more than just base effects.

“It is the result of a better balance between addressing COVID-19 and the need to restore jobs and incomes of the people. Almost all sectors bounced back despite the imposition of lockdown in April and May. This is a clear indication that managing risks, instead of shutting down large segments of the economy, stands a far better chance of improving both economic and health outcomes,” he said.

But analysts argued the latest gains would likely be reversed as economic recovery is facing another setback with the reimposition of tight restrictions amid a surge in COVID-19 cases due to the Delta variant.

Chua, on the other hand, said prospects for a strong economic recovery this year remain promising despite the speed bumps. He said the six to seven percent GDP target for 2021 is still up for review by the Development Budget Coordination Committee.

The Philippine Statistics Authority estimates that the economy needs to grow at least 8.2 percent in the second half of the year to reach the lower end of the target, while as much as 10.2 percent is needed to achieve the upper goal.

“It will depend on the outcome of the present ECQ if we are able to manage the risk then we will lift. We will maximize and use this time to inoculate as many as we can,” Chua said.

“We are also cognizant of the fact that ECQ now is more managed. We did not shut down public transport and workers are exempt. These can help mitigate the downside risks.”

Private economists, however, offered a contrasting view.

ING Bank senior economist Nicholas Mapa said the trend of quarter-on-quarter backtracking is expected to continue in the second half. This as consumer sentiment remains negative due to elevated unemployment while bank lending has been consistently negative since January.

“With a relatively slow vaccination rollout, the Philippines may be forced to resort to costly mobility restrictions again should new variants cause future waves of infection,” Mapa said.

“We will likely need to lower our full-year GDP forecast for 2021 especially if the planned two-week period for heightened mobility curbs is extended further,” he said.

Research and advocacy group IBON Foundation, for its part, emphasized that second quarter performance is not a sign of recovery gaining traction and would just falter as the effects of economic scarring, lockdowns, and misguided fiscal conservatism are felt.

IBON executive director Sonny Africa said the 8.2 percent growth needed in the second semester is unlikely with the government’s business as usual approach.

“It will have a fighting chance, though, with a real stimulus package over and above the current 2021 budget and if it fixes its non-lockdown containment measures,” Africa said.

Mapa agreed that fiscal stimulus is warranted to reverse the economic downturn even as it appears that the economic team will cut back on spending to preserve debt metrics following outlook downgrades from debt watchers.

Lanzona concurred that fiscal stimulus has become more difficult to fund because of the already high international debt, which should encourage the government to find ways to tax the upper income class of the society to finance recovery.

“Sustainable growth is not just a matter of passively maintaining economic fundamentals which the government is obsessed about. It requires diversification with structural changes,” Lanzona said.

International think tanks have also turned pessimistic on economic recovery prospects for the country, saying targets now look out of reach.

Alex Holmes of Capital Economics said the outlook has been increasingly uncertain, prompting them to cut their 2021 GDP forecast to five percent from the earlier six percent.

This now falls below government targets and would leave GDP over 14 percent smaller by year-end than the pre-COVID-19 trend.

“Of most concern is the Delta variant which, after previously being kept out by strict border measures, is now gaining a foothold in the country. The experience of other countries in the region suggest it will be very hard to contain,” Holmes said.

“Vaccination offers a route out of the crisis. But just 10 percent of people are fully vaccinated. And while the pace of inoculations has picked up recently, things are still progressing too slowly for the government to hit its target,” he said.

Pantheon Macroeconomics’ Miguel Chanco noted that GDP growth in the mid-four percent range is the best the Philippines can hope for this year.

Nonetheless, the government said it will continue to ramp up its three pillar strategy to achieve our growth and job targets including acceleration of the vaccination program, safe reopening of the economy, and the full implementation of the recovery package.

Chua maintained that the country’s COVID-19 vaccination program is on track with the arrival of over 148 million doses for the rest of the year. Nearly 40 million doses have arrived in the country since March.

Chua added that economic recovery will also get a boost from the Build Build Build program and the implementation of the Corporate Recovery and Tax Incentives for Enterprises law.

The expected passage of the amendments to the Public Service Act, the Retail Trade Liberalization Act, and the Foreign Investment Act will also help attract investments, push up growth potential, and create more and better jobs.

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