Coronavirus pummels Philippines to worst crash on record

MANILA, Philippines (UPDATE 12:14 p.m., Jan. 28) — The Philippine economy expectedly shrank the largest on record last year after the coronavirus pandemic messed not only with the country's hard-earned economic laurels but also with its ambitions to become a middle-income economy under President Rodrigo Duterte.

The health crisis’ impact was so severe that the slump in gross domestic product (GDP), which hit 9.5% year-on-year, beat even the previous record of 7% contraction during the twilight years of Marcos dictatorship in 1984. Going way back, last year's performance was the worst since records started in 1946.

Worse, scars left by the coronavirus and lockdowns it proliferated are likely to linger in the economy. In current prices, the pandemic wiped out P1.5 trillion from 2019 GDP, reflecting the daunting task ahead for the Duterte administration that pledged to restore all these losses by 2022, its last year in office.

Last year’s performance fell within a government’s revised target of 8.5-9.5% contraction.

Not all were bleak on Thursday’s report from the Philippine Statistics Authority though. In the fourth quarter alone, GDP contracted 8.3% year-on-year, continuing a slow rebound from recession that started in the second quarter. From the third quarter, GDP gained 5.6% after lockdowns were eased, consumers were allowed to go out and more businesses reopened.

That said, Steven Cochrane, Asia-Pacific economist at Moody's Analytics, believes sluggish pace of vaccine procurement and the lack of convincing fiscal stimulus would still hurt Philippines' prospects this year.

"Given the slow pace of vaccine acquisition, the moderate fiscal stimulus so far, and the very deep downturn in the first half of 2020 due to the extensive quarantines, I expect that GDP will not fully recover to its previous peak in 2019Q4 until the end of 2022," Cochrane said in an email before the data was released.

"To put this in perspective, if the forecast plays out as we expect, the Philippines will be the last of the Asia-Pacific countries to fully rebound and attain a GDP level above 2019Q4," he added.

Investors, who initially were set to recover some lost ground in recent days, turned skittish with the GDP report. The Philippine Stock Exchange index inched down 0.17% or 11.17 points to close at 6,851.44.

Dissecting the latest GDP report, consumer spending, which historically makes up about 70% of the economy, was an unreliable source of growth last year after plummeting 7.9%. Agriculture, which for three quarters was a pandemic bright spot, went down 0.2% after strong typhoons in November compounded the impact of the African swine fever outbreak.

After falling early in the year because of lockdowns that stopped construction work, government spending, caught up and grew 10.4% for all of 2020 from 9.6% expansion in 2019. Still, the slight increase amid growing public needs during a crisis showed government’s hesitation to launch a convincing fiscal stimulus and offset the economy’s weakness. 

Nicholas Mapa, senior economist at ING Bank in Manila, said this decision to be fiscally conservative would greatly derail a prospective recovery this year. Growth will return, he said, but data will be distorted largely by “base effects.”

“Bangko Sentral ng Pilipinas Governor Diokno has front-loaded a flurry of rate cuts in 2020 and is likely out of ammunition," Mapa said in an emailed commentary. “The 2021 budget was bumped up by 10% in 2021 and will not likely be enough to move the needle to jump start the ailing economy.”

For Acting Socioeconomic Planning Secretary Karl Kendrick Chua, 2021 will remain a turbulent year for the Philippines. “The road ahead remains challenging but there is now light at the end of the tunnel,” he said.

“2021 will test everything: it will test our resiliency, our economic foundation, our healthcare system, and even our personal grit,” he added.

Editor's note: Updates on data, comment and charts.