-4.2%

The first quarter economic numbers are in. They show the country’s GDP shrinking by a further -4.2 percent.

The continued contraction brings to five consecutive quarters the recession bedeviling our economy. This is the most protracted recession since the economy shrunk for nine consecutive quarters between 1983 and 1985 when we ran short of foreign exchange and defaulted on our loan obligations.

While protracted, the earlier period of recession was shallower. In the fourth quarter of 1983, the economy contracted by -3.2 percent. By the fourth quarter of 1985, the decline had eased to -2.1 percent.

That earlier recession was ended by the economy booming in the late eighties. The boom, however, was restricted by a major structural weakness: the country did not have enough electricity. The Cory Aquino years are now remembered as a period of rotating brownouts.

By contrast, our economy contracted massively at -9.5 percent for 2020 – the worst contraction in the ASEAN region. The massive contraction created business disruptions and destruction of supply chains. It will take some time to repair them.

The first quarter’s contraction was significantly higher than expected. Most analysts expected a contraction of about -2.2 percent. Clearly, the return of restrictions on movement imposed last March aggravated the contraction.

Earlier this year, our economic managers were bravely predicting 2021 growth at 7 percent or more. International finance institutions scaled that down to about 6 percent. Private sector economists are now looking at 5 percent as the more likely growth number for the year.

All growth projections are premised on the extent to which we are able to keep infections under control. The possible developments of new and more transmissible variants of the coronavirus will certainly be bad economic news.

Three-quarters of our GDP is contributed by final household consumption. This category saw a continuing decline of 4.8 percent in the first quarter.

Gross capital formation declined by -18.3 percent. Although the BSP cut interest rates and government financial institutions put together large lending packages to support distressed small and medium businesses, the banks report a decline in borrowing of over -4 percent. Gross capital formation shrunk by -18.3 percent. Both our exports and our imports declined as well by -9.0 percent and -8.3 percent, respectively.

It is clear that unless there is substantial improvement in the public health situation, business confidence will remain weak.

Last year, as our economy contracted more massively, our agriculture and fisheries managed to eke out some growth. That was remarkable.

In the first quarter, our agriculture and fisheries declined by 1.2 percent. We have yet to find out why this happened. There were no significant severe weather events in the first quarter. Our economists will have to tell us if this is attributable to the weakness of our logistics systems.

Meanwhile, the service sector and industry declined by -4.4 percent and -4.7 percent, respectively. This is more directly attributable to the restrictions on movement.

Gross national income declined by a hefty -10.9 percent in the first quarter. The main culprit for this is the -75.8 percent decline in net primary income from the rest of the world.

The peso, of course, has strengthened to the $1:P47.80 level. But this is due principally to the reluctance of our corporations to import capital goods.

In the face of nearly across-the-board declines, the only offsetting factor is public spending. The biggest increase in public spending is, not surprisingly, on public health.

Vaccines

The most vital factor determining our country’s public health and economic outlook is the availability and efficient dissemination of vaccines.

Over the last few days, we received the largest deliveries of vaccines to date. This will help us build our resiliency in the face of a lingering pandemic. It will also allow us to open up the economy even more – so that the first quarter of this year will be the last one where our economy is in recession.

Fortunately, for us, the global vaccine shortage is a self-limiting problem. As soon as the richer countries are able to fill their stockpiles, more vaccines will be available for the rest of the world.

The bulk of the vaccines we have on hand come gratis from the Covax Facility and the Chinese government. Nearly half of the supply of procured vaccines we have on hand was purchased from Sinovac. Over the near term, we should be receiving large deliveries of Sputnik V doses from Russia.

Russia and China account for the major portion of vaccines delivered to the developing economies. India, the world’s largest vaccines manufacturer, might have complemented this had a severe second wave of infection not hit the world’s second most populous country.

Israel, the first country to achieve some sort of herd immunity, put the Philippines at the highest priority countries to receive its excess vaccines. During Quezon’s time, the Philippines opened its doors to refuges fleeing the Nazi genocide in Europe. Tel Aviv remains grateful for that.

We could even receive excess vaccines from the mammoth US stockpile. Right now, there are more vaccines in the US than there are people who want to receive them. These vaccines have a short shelf life. From being the world’s biggest hoarder of vaccines, the US could become the world’s largest donor.

By next month, government orders for vaccines will begin to be met by the manufacturers. The bulk procurement of vaccines by some of our largest corporations will supplement government’s supply. Through the third quarter, our vaccination program will scale up dramatically.

As the vaccine supply situation improves dramatically, this will be a good signal for the economy as well. We could turn quickly from recession to growth.