Strict quarantine measures to contain the coronavirus slammed the brakes on the Philippines’ two decades of uninterrupted growth in the first quarter, hurtling the economy towards a recession this year.
Gross domestic product unexpectedly shrank 0.2% in January to March from the same period last year, the first decline since the fourth quarter of 1998, data from the statistics agency showed on Thursday.
The contraction dashed forecasts for 3.1% growth and economists now believe GDP will see a steeper drop ahead as an extended lockdown in the capital takes a heavier toll on domestic demand.
“First-quarter slump is the tip of the iceberg,” said Alex Holmes, Asia Economist at Capital Economics, in a note. “The second-quarter figures are likely to be much worse”.
Seasonally adjusted GDP fell 5.1% versus fourth-quarter 2019.
The Philippines placed the main island of Luzon, which accounts for more than two thirds of the economy and half of the population of more than 107 million, on lockdown from mid-March until the end of April.
The enhanced community quarantine (ECQ) measures, among the strictest in Asia, was relaxed from May 1, paving the way for incremental resumption of work and commercial activity in low-risk areas. However, Manila, where most cases are, remains under strict stay-at-home orders.
Household consumption slowed to 0.2% in the first quarter from last year, its weakest in at least two decades and down sharply from the fourth quarter’s 5.7%.
Government spending also grew at a much slower pace of 7.1% in the first three months of the year from a year earlier, compared with 17% in the final three months of 2019.
Capital formation fell a hefty 18.3% after posting 2.5% growth in the fourth quarter.
“Containing the spread of the virus and saving hundreds of thousands of lives through the imposition of ECQ has come at a great cost to the Philippine economy,” Acting Economic Planning Secretary Karl Chua told an online news conference.
The Philippines recorded its first local transmission of the virus in March and has since registered more than 10,000 confirmed cases and more than 600 deaths.
To support growth, the Bangko Sentral ng Pilipinas (BSP) has cut interest rates three times this year, with the latest move in April an off-cycle easing that brought the benchmark interest rate PHCBIR=ECI to a record low of 2.75%.
BSP Governor Benjamin Diokno signalled he was in no hurry to slash policy rates again, saying the cumulative 125 basis point cut in interest rates so far this year was “appropriate to buffer the country’s growth momentum and boost market confidence amid stronger headwinds”.
“It is time to pause, monitor and evaluate what’s happening,” Diokno said in a news conference streamed online.
Diokno said he expects the economy to bounce back strongly in the fourth quarter on the assumption the pandemic will be contained in the second half.