MANILA, Philippines (UPDATE 2 12:43 p.m., May 7)— The Philippine economy shrank for the first time in more than 21 years in the first quarter, the clearest sign of damage from the coronavirus pandemic which both government officials and analysts expect to worsen this quarter.
Gross domestic product (GDP), the sum of all goods and services created in an economy, contracted 0.2% year-on-year in the first quarter, the Philippine Statistics Authority reported on Thursday.
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The performance marked the first time the local economy sank to the negative territory since the fourth quarter of 1998, when the “combination” of an El Niño phenomenon and the Asian financial crisis wiped out 3% from GDP.
“The first quarter, I think, is still respectable given the very difficult environment that we are in. Second quarter might be worse but we are using our policies to proactively manage our trajectory,” Acting Socioeconomic Planning Secretary Karl Kendrick Chua said in an online briefing.
“So that by the second half, we can recover gradually,” he added.
The latest performance, announced nine minutes later than the original schedule of 10 a.m., was expected however by observers like Alex Holmes, Asia economist at Capital Economics, who said the lockdown of Luzon that restricted people movements had a “severe impact on economic activity.”
The figure cements worries the Philippine economy, which managed to grow during two financial crises in 1997 and 2008, will not get spared from the wider and bigger economic repercussions of the global health crisis, brought by a disease with no known cure yet.
That said, Chua indicated the Duterte government is ready to tolerate some economic slump, a narrative long emphasized by economic officials even as they prepare to wind down movement restrictions in Metro Manila and neighboring areas by May 16. “Our priorities are clear: to protect lives and health of our people,” Chua said.
Across-the-board
As it is, the Philippines did not seal off Luzon, responsible for around 70% of GDP, until March 17. The decision shuttered two-thirds of businesses in the island, and laid off a fifth of total workers, Chua said. But even before the lockdown, tourism and hospitality industries were already reeling from cancelled flights and empty hotel rooms two months before when travel barriers were put up.
The disruptive effect was felt across-the-board. The farm and industry sectors dragged the performance by contracting an annual 0.4% and 3%, respectively. Only the traditionally strong services sector, backed by business process outsourcing, grew, albeit at a much slower pace of 1.4% year-on-year.
On the expenditure side, government spending was faster, growing 7.1% on-year, and helping counter anemic consumer spending which barely inched up 0.2%. On the flip side, exports slumped 3%.
Despite the bleak outlook, Chua said the economic managers would keep the 6.5-7.5% GDP growth target for the year. While “a target is a target,” “the reality and the emerging number is we are going to see flat or slightly negative growth,” Chua said.
In a recent Viber message, Finance Secretary Carlos Dominguez III said a fresh set of macroeconomic assumptions would be available by the time the Executive submits to Congress the proposed budget for 2021. For now, Chua said the government “is sticking to the 0% to -0.8% growth projection for the year.”
“Stimulating our economy needs to begin in stimulating domestic demand or consumption. Demand will only increase if people feel safe and are confident that healthcare system is working for them,” he explained.
Alvin Ang, an economist at Ateneo de Manila University, said before the data was released growth would slow “much faster” this quarter, but all hope is not lost for the economy this year.
“The government cannot do anything but fine tune policies now to avert a possible much bigger contraction,” Ang said in an online exchange.