After recession, Duterte gov't tempers growth ambitions
MANILA, Philippines — The Duterte administration is now bracing for a deeper crash and slower bounce-back over the next two years after the Philippine economy entered recession in the second quarter.
From 2-3.4% contraction, the economy is now seen to nosedive between 3.4% and 5.5% by year-end, which if realized, will be the steepest fall since 1985. The economy is currently faring worse than expected, plunging 9% as of the first half.
As it is, the 16.5% contraction in gross domestic product (GDP), the sum of all products and services created in an economy, in the second quarter was the worse on available record, prompting economic managers to revisit even growth goals for its last two years in office.
The result was a tempered ambition to grow the economy between 6.5-7.5% in 2021 and 2022, down from as much as 9% next year and 7% in 2022 projected last May 27.
“Without doubt, the pandemic and its adverse economic impact are testing the economy like never before,” Acting Socioeconomic Planning Secretary Karl Kendrick Chua said in a briefing.
“Clearly, this will be a drawn-out struggle. We are in a marathon rather than a sprint.”
Economic officials on Thursday repeated calls for unity to fight, and live with the deadly virus of which there is no known cure or vaccine. That said, they also rejected anew calls for a larger budget stimulus, sticking at P140 billion under the Bayanihan to Recover As One bill, to save an economy that was once a darling of investors in Southeast Asia.
"We remain hopeful for a substantial fiscal rescue effort to spearhead the economic recovery as the rest of the economy remains in sick bay," said Nicholas Antonio Mapa, senior economist at ING Bank in Manila.
To be fair, the Philippines is not alone on it struggles, as Finance Secretary Carlos Dominguez III said. But data culled by the finance department also showed that the economy suffered more than its neighbors in the first half. While Philippine GDP sank 9%, Indonesia’s only went down 1.2%, Thailand’s is seen to have declined 6.5%, while Vietnam’s output even rose 2.1%.
Bangko Sentral ng Pilipinas Governor Benjamin Diokno, in a statement, believe the “worst is behind us.” “No doubt, given the sharp drop of the economy in Q2 (second quarter), I’m convinced that Q3 will be better than Q2, and that Q4 will be much better than Q3,” he said.
Meanwhile, apart from GDP performance, economic managers comprising the Development Budget Coordination Committee (DBCC) revised the rest of their macroeconomic assumptions and spending plans last July 28. The figures are tabled below:
2020 macroeconomic assumptions
| Indicator | May 27 DBCC meeting | July 28 DBCC meeting |
|---|---|---|
| GDP growth/ (contraction) (%) | (3.4)-(2) | (5.5)-(3.4) |
| Inflation (%) | 1.75-3.75 | 1.75-2.75 |
| Dubai crude ($/barrel) | 23-28 | 35-45 |
| Peso-dollar exchange rate | 50-54 | 50-52 |
| Goods export growth (%) | 4 | -16 |
| Goods import growth (%) | 5.5 | -18 |
2021 and 2022 assumptions
| Indicator | 2021 | 2022 |
|---|---|---|
| GDP growth (%) | 6.5-7.5 | 6.5-7.5 |
| Inflation (%) | 2-4 | 2-4 |
| Dubai crude ($/barrel) | 35-50 | 35-50 |
| Peso-dollar exchange rate | 50-54 | 50-54 |
| Goods export growth (%) | 5 | 5 |
| Goods import growth (%) | 8 | 8 |
Budget program
| Indicator | 2020 | 2021 | 2022 |
|---|---|---|---|
| Revenues (in trillion pesos) | 2.52 | 2.72 | 3.03 |
| % of GDP | 13.4 | 13.2 | 13.3 |
| Expenditures (in trillion pesos) | 4.34 | 4.47 | 4.68 |
| % of GDP | 23 | 21.6 | 20.5 |
| Surplus/ (Deficit) (in trillion pesos) | (1.82) | (1.75) | (1.65) |
| % of GDP | 9.6 | 8.5 | 7.2 |
Amid lower revenues and wider deficits, Dominguez said the government will borrow P3 trillion in 2021 and 2022 as it expects the fight against coronavirus disease-2019 to drag on. The amount to be borrowed, however, will not only fund government operations and public projects, but also pay for maturing obligations.
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