The country’s economic performance is expected to contract deeper than earlier projected due to lingering impact of the COVID-19 pandemic and the resulting community quarantines to contain its spread, according to the revised macroeconomic assumptions of the Philippines’ economic managers.
The Development Budget Coordination Committee (DBCC) said, in a joint statement read by Budget Secretary Wendel Avisado, that “the emerging Gross Domestic Product (GDP) growth rate assumption for 2020 has been adjusted to -8.5 to -9.5 percent, following the prolonged imposition of community quarantines in various regions in the country.”
The revised full-year 2020 GDP outlook is worse than the -5.5% earlier projected by the economic team in August.
“The projection for GDP in 2020... takes into consideration the performance in the first three quarters and the continuing GCQ (general community quarantine) status for NCR (National Capital Region) and key urban areas,” Acting Socioeconomic Planning Secretary Karl Kendrick Chua said.
The Philippine economy contracted by 11.5% in the third quarter, -16.9% in the second quarter, and by -0.7% in the first quarter, bringing the year-to-date average to -10%.
National Statistician Claire Dennis Mapa earlier said that the full-year forecast of -5.5% “at this point, is no longer feasible.”
Chua said the natural calamities that hit the country were also incorporated in the revised economic projections.
“The Q4 (fourth quarter) GDP might be .62 percentage points lower and the full-year might be -.17 percentage points lower because of La Niña, African Swine Fever, and the recent strong typhoons,” Chua said.
To recall, the Philippine economy was at a standstill during the latter part of the first quarter due to the implementation of strict quarantine measures — enhanced community quarantine (ECQ) in Metro Manila and other high-risk areas from March 17 to May 15, followed by a modified enhanced community quarantine (MECQ) until May 31.
More relaxed restrictions were then implemented under the general community quarantine (GCQ) starting June 1. Metro Manila and four other nearby provinces, however, were reverted to the stricter MECQ from August 4 until August 18.
Currently, NCR, Batangas, Iloilo City, Tacloban City, Lanao del Sur, Iligan, and Davao City are under GCQ while the rest of the country is under the most relaxed form of lockdown —modified GCQ.
Nevertheless, the economic managers expect GDP to bounce back to 6.5% to 7.5% percent in 2021 and 8% to 10% in 2022.
“Further relaxation of restrictions, as we have improved our healthcare system capacity, will keep our economy on the right track towards full recovery,” Avisado said.
The DBCC said that despite the contraction in the July to September period, the economy actually grew by 8% on a quarter-on-quarter basis or compared to the performance in the second quarter.
“We are also expecting further improvement in our fourth quarter GDP numbers. As we carefully and proactively manage the risks, a strong economic recovery and solid growth remains within our reach,” Avisado said.
“The Philippines has endured the worst economic impacts of the COVID-19 pandemic through prudent fiscal management and evidence-based and decisive actions to address the global health emergency. As the economy gradually moves towards full reopening, we expect significantly better economic outcomes next year,” he said.
Chua further explained that the assumption for 2021 took into consideration that community quarantine will still be present and a vaccine will be available next year.
Defending the high growth rate projections next year and in 2021, Finance Secretary Carlos Dominguez III said “the economy’s productive capacity is not damaged, it’s still there,” noting that economic activity was temporarily halted by “scare” from contracting COVID-19.
To further highlight that recovery is at hand, the economic managers cited the results of the October 2020 Labor Force Survey which saw the unemployment rate ease to 8.7% or 3.8 million jobless adults from the record-high of 7.2 million in April.
“The Labor Force Survey indicates some positive results from our efforts to bring the economy back on track towards inclusive growth,” according to the DBCC.
“The decline was driven by the further reopening of the economy, and we believe the unemployment rate could have been lower if the economy had been opened earlier, if more adequate public transport had been made available, and if the country had not been hit by a succession of typhoons: Nika, Ofel, Pepito, and Quinta,” the economic managers said.
The DBC also cited the necessary legislative reforms to further boost economic recovery moving forward.
“The recent approval of the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) by the Senate will support our efforts to restore and create hundreds of thousands of jobs and help businesses continue operating,” the economic managers said.
“CREATE is the largest stimulus package ever for private enterprises. It will reduce the corporate income tax rate for a large majority of firms, mostly the small businesses that employ over 60% of Filipino workers,” the DBCC said.
Likewise, the passage of the Financial Institutions Strategic Transfer Act (FIST) will let banks offload souring loans and assets.
“This will allow them to extend more credit to COVID-hit sectors in need of assistance. The availability of financing for businesses and the continued strength of our banks will be critical in protecting jobs,” according to the DBCC.
“The 2021 National Budget, meanwhile, will be the heftiest stimulus package for our economy, enabling public spending to stimulate recovery.”
Inflation, foreign exchange
The DBCC also approved the revisions to the macroeconomic assumptions and medium-term fiscal program based on the latest emerging data.
For inflation, the rate for this year is projected to range from 2.4% to 2.6%, while the inflation assumption for 2021 and 2022 is retained at 2.0 to 4.0 percent.
The Philippine peso-US dollar exchange rate assumption, meanwhile, was revised to P48 to 50 against the US dollar for 2020 and P48 to P53:$1 from 2021 to 2022.
For trade, the economic managers expect that the outlook for goods export is maintained at -16% for 2020, while growth of goods imports for 2020 was further adjusted to -20.0%.
These are expected to pick up by 2021 and 2022 with the growth of goods exports maintained at 5.0% and growth of goods imports pegged at 8.0%.
Services exports and imports growth assumptions in 2020 are expected to contract further by 21.4% and 19.0%, respectively.
However, these are assumed to rebound by 2021 with projected growth reaching 6.0% for services exports and 7.0% for services imports.
“This accounts for the gradual opening up of the domestic economy and increase in travel-related activities,” the DBCC said.—LDF, GMA News