The economy has returned into growth mode, posting a dramatic performance in the second-quarter as expected, but the country’s recovery is losing steam as the rapidly spreading Delta variant has forced the government to put the breaks on further reopening plans.
The gross domestic product (GDP) growth accelerated 11.8 percent in April to June, a reversal of the pandemic-driven 17 percent decline seen in the same period last year, the Philippine Statistics Authority (PSA) reported Tuesday, August 10.
The second-quarter GDP has been hailed as the Philippines’ strongest performance in more than three-decades and marked the end of five consecutive quarters of negative growth, or recession.
The latest GDP figure dramatically improved from minus 3.9 percent registered in the first three-months of the year and 8.3 percent decline observed in the final three months of 2020.
“The robust performance is 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,” a joint statement of the government’s economic managers said.
The record performance for the quarter ending June, the highest since the fourth-quarter of 1988, brought the first-semester GDP at 3.95 percent.
The government expects full-year economic growth to come in between 6.0 percent and 7.0 percent. To hit at least the low-end of the target, the economy should expand 8.2 percent in July to December.
However, the local economy is losing some momentum as the second-quarter GDP showed a contraction of 1.3 percent compared with the January to March output. In the previous quarter, seasonally adjusted GDP grew 0.3 percent.
Socioeconomic Planning Secretary Karl Kendrick T. Chua said the slight decline in seasonally adjusted GDP was driven by driven by stricter quarantine controls.
“Had we not managed the risk better and allowed most sectors to operate and implement and enforce the health protocol, that seasonally adjusted quarter-on-quarter would have been worse,” Chua said.
Likewise, the local economy has yet to return to pre-pandemic levels despite a robust expansion pace. At constant prices, GDP was estimated at P8.9 trillion in the first semester, lower by six percent than the P9.4 trillion in the same period in 2019.
Nicholas T. Mapa, ING Bank Manila senior economist said the economic outlook for 2021 is dimmed as recovery momentum started to fade despite a double-digit expansion rate last quarter.
Mapa noted that strict movement controls to manage the spread of the pandemic in April and August have derailed the economic recovery. “We can expect this trend to continue in the second half of the year.”
In addition, consumer sentiment remained negative likely due to elevated unemployment figures while bank lending has been negative for seven-months now and counting, he said.
“One interesting development was that government expenditure was the lone sector to contract as the authorities rein in spending to limit its impact on the country’s debt level,” Mapa said.
“The economic recovery will likely face a similar setback in third-quarter as mobility restrictions returned in August with the country now facing a surge in COVID-19 infections due to the Delta variant,” he added.
For this reason, Mapa said fiscal stimulus may be warranted to reverse the economic downturn “but it appears that the authorities will cut back on spending to preserve debt metrics after the recent Fitch outlook revision.”
“We will likely need to rework lower our full-year GDP forecast for 2021 especially if the planned two-week period for heightened mobility curbs is extended further,” the ING economist said.
Meanwhile, Chua said the Development Budget Coordination Committee (DBCC) will review the recent economic data and the risks associated with the Delta variant to fine-tune its growth targets and adjust the government recovery strategies.
The DBCC is an inter-agency today tasked to set the macroeconomic targets of the country.