Economy shrinks by 16.5% in second quarter
The Philippines suffered its worst economic contraction in recent history after the coronavirus-induced crisis coupled with the most stringent lockdowns pushed the economy into recession for the first time in nearly three decades.
The country’s economy is so far the pandemic’s leading casualty in Southeast Asia after its Gross Domestic Product (GDP) registered deepest contraction on record at 16.5 percent during April to June period, data from the Philippine Statistics Authority (PSA) showed.
This contraction followed a revised 0.7 percent contraction in the first three months of the year and marked the biggest reduction in economic activity since records began in 1981 which resulted in widespread job losses, falling prices, and weak trade activity.
It is the country's first recession in three decades. Economists define recession as two consecutive quarters of negative growth in GDP.
“Our country is facing the biggest crisis in nearly eight decades,” Acting Socioeconomic Planning Secretary Karl Kendrick T. Chua said Thursday, noting that economic losses due to lockdowns stood around ₱1.5 trillion per month.
The country officially entered a technical recession in the first semester after its GDP suffered two consecutive quarters of decline following a significant drop in general economic activity that began in January.
Filipinos should be bracing for a severe economic downturn as this recession could be worse than in 1991 because the pandemic has a global scale impact.
“It’s a different situation now than in 1991 recession,” explained a ranking government official who declined to be identified.
“We’re in a much more difficult situation because the whole world is on recession.”
“In 1991, the Philippines had relied abroad, through overseas remittances, to revive the economy. Now, because COVID-19 affected almost all nations, we have to look inwardly to support our own economy,” the official said.
President Duterte’s economic managers adjusted Thursday the government’s GDP target for this year to minus 5.5 percent from an earlier estimate of 2.0 percent to 3.4 percent.
At end-June, the economy already declined by 9.0 percent.
The Philippines is so far the hardest hit economy compared with its ASEAN peers that have reported their second-quarter data.
Singapore’s GDP contracted by 12.6 percent, while Indonesia suffered a 5.32 percent decline.
Vietnam registered a 0.36 percent growth.
“These are extraordinary times and the road ahead of us continues to be challenging and uncertain,” Chua said.
“At this critical juncture in our history, working together to address this unprecedented crisis is our best recourse.”
In the second-quarter, household consumption and private sector investment, which drove growth in the past, have significantly declined due to the closure of businesses and the loss of income during the lockdown period.
Despite the severe second-quarter GDP data, Chua said the government is beginning to see the light at the end of the tunnel.
“While the decline in GDP is huge, we are beginning to see signs of recovery. Manufacturing production, exports, and imports have taken a U-turn as the pace of decline slows,” Chua said.
For 2021, the government is confident that the country is on track to economic recovery, with GDP growth expected to reach 6.5 percent to 7.5 percent.
The country's economic woes have been exacerbated by a drop in remittances from the legion of Filipinos working abroad who typically send money to their families every month, which fuels consumer spending – the main driver of growth.
Remittances dropped 6.4 percent in the first five months, compared with the same period last year, according to the central bank, as thousands of seafarers, cleaners and construction workers lost their jobs and returned home.
Consumer spending in the second quarter plummeted 15.5 percent, the statistics agency said.
“It will be a rough road to recovery as trade-offs between economic recovery and health will remain a big challenge to both the private and public sectors,” said Emilio Neri, lead economist at Bank of the Philippine Islands.
With the weak economy, the Management Association of the Philippines stressed that a stimulus package like the ARISE is really needed for the economy to bounce back at the soonest possible time.
“We have been saving for the rainy days and now is the time to spend. Funding for ARISE can be staggered and partly supported by borrowings which, under a Supreme Court decision, can be done. We should not also leave any stone unturned to regain public confidence as our economy is principally driven by domestic consumption,” Francis Lim, MAP President.