The contraction of the Philippine economy likely improved in the fourth quarter of 2020 but the full-year gross domestic product (GDP) decline is expected to hit more than 9 percent due to the combined effects of the pandemic and damages caused by typhoons, analysts polled by The Manila Times said.
Projections for the period ranged from -6.3 to -11.2 percent with a -9.2-percent average, slower than the 11.5-percent decline in the third quarter of 2020 but a reversal from the 6.7-percent growth in the same quarter in 2019.
Analysts said full-year 2020 GDP contraction will likely settle at 10.3 percent from a 6.0-percent expansion in 2019.
Official fourth quarter and whole year 2020 Philippine economic growth data is set to be released by the Philippine Statistics Authority on January 28.
Philstocks Financial Inc. senior research analyst Japhet Louis Tantiangco projected GDP to contract by 11 to 11.4 percent during the fourth quarter, bringing the year-to-date decline to 10.3 to 10.4 percent.
“The year-on-year contraction is first due to high base effects. In the fourth quarter of 2019, our real GDP posted P5.260 trillion, which is the highest quarterly figure on record so far. This is a tough record to beat given the condition of our economy during the fourth quarter of 2020 which brings to my next point,’ said Tantiangco.
“In the fourth quarter of last year, the economy was still suffering from the damages brought by the stringent quarantine measures that have been implemented in selected areas of the Philippines in the middle of the 2020. These include the business closures that have led to lower production of goods and services, and the job losses which have led to less disposable incomes on a macro-scale,” he added.
He pointed out that areas in the country were also still under social restriction measures, hindering the economy from operating at maximum capacity.
According to Tantiangco, consumption is expected to be the main driver of the economy. This, however, is expected to be a “seasonal factor” due to forecasted decline in disposable income.
“Government spending is seen to be supportive for the quarter tempering the economy’s drop. Investments are still seen to be tepid as confidence towards the economy remains fragile,” said Tantiangco.
Nicholas Mapa, senior economist of ING Bank Manila, for his part, forecasts a 10.4-percent decline for the fourth quarter and 9.5-percent contraction for full year 2020 on the back of the expected decline in household consumption and capital formation.
“Mainstay household consumption will likely post yet another quarter of contraction partly due to the lockdown measures but more likely due to the severe job losses and the overall evaporation in consumer confidence. With the uncertainty at palpable levels, it would be understandable that households hold back on spending and focus on bare necessities,” said Mapa.
He said capital formation will also likely contract by double-digits as indicated by the sharp pullback in capital goods imports during the second half of 2020.
Mapa said typhoons that hit the country as well as the African swine fever also affected agricultural output while construction activity and manufacturing are also seen to decline.
Hard-hit consumer spending, services sector
According to Mapa, government spending also likely will retreat in the fourth quarter due to the high base effects in 2019, and the government’s move to get the deficit to GDP numbers to fit their preferred optics.
“Lastly, the services sector, which comprises the majority of economic activity, would have been adversely affected by the pandemic, mirroring the struggles of household consumption on the expenditure side of the national accounts,” said Mapa.
“The entire growth story of the Philippine economy is built on the strength of the consumer and with the Philippines missing its mojo, it’s easy to see why the rest of the growth story crumbles if consumption fades. Firms will likely put off any major investment plans until household spending returns to form while households also adopt a wait-and-see approach before jumping head long into new loans for investments,” he added.
Mapa said that without a steady base of revenue, government spending will remain modest as authorities fret about how to fund the country’s economic recovery.
Regina Capital Managing Director Luis Limlingan, meanwhile, projected GDP to decline by 9.8 percent in the fourth quarter and contract by 9.7 percent in 2020.
Limlingan attributed the decline to the limited economic mobility caused by the pandemic and the damages brought about by the typhoons.
An analyst from Security Bank Corp. (SBC) estimates the economic contraction to hit 9.5 percent in the fourth quarter and the full-year to drop at 9.9 percent.
SBC chief economist Robert Dan Roces said economic activity continued to pick up at a modest pace in the last quarter of 2020 while the manufacturing Purchasing Managers Index (PMI) averaged 49.2 during the quarter compared with the 48.6 average in the third quarter.
He said, however, that while PMI has improved, the manufacturing sector was still hampered by constraints in mobility, affecting supply chain and capacity utilization.
“Circling back to mobility data in December will show movement to have reached pre-pandemic levels likely because of holiday consumption — which should bode well for GDP — but may not be enough to push full-year growth further. The high fourth-quarter 2019 base will not help as well,” said Roces.
“We do expect 2021 growth to be better than 2020, with firmer market conditions in 2H21 (second half of 2021) and likely nudged by vaccine rollouts, which should improve confidence and market sentiment enough for an economic rebound to begin. However, we might not yet surpass 2019’s growth level this year; full recovery is expected in 2022,” he added.
Vaccination and other interventions
Rizal Commercial Banking Corp. chief economist Michael Ricafort gave a -8.5 percent and -9.5 percent projection for the fourth quarter and full year 2020, respectively, citing the possible pick up in both business and consumer spending.
“Faster rollout of the P165-billion Bayanihan 2 Law (Bayanihan to Recover As One Act) funds and any further increase in other government spending especially for various Covid-19 (coronavirus disease 2019) programs and other interventions, though offset by some slow down in infrastructure spending, would also support narrower GDP contraction in fourth-quarter 2020,” said Ricafort.
Ricafort said that for this year, government spending, especially on infrastructure, monetary easing measures, and reform measures such as the second package of the tax reform could boost economic recovery.
“Hopefully, new Covid local cases would ease, improve in the latter part of 2021 with the arrival of more vaccine orders so new cases would significantly go down further and justify further reopening of the economy that supports faster economic recovery,” said Ricafort.
IHS Markit chief economist for Asia and Pacific Rajiv Biswas offered the lowest projection of -6.3 percent for the fourth quarter.
“Domestic economic output has been improving during Q4 2020 (fourth quarter of 2020) due to improving industrial production and consumer spending as lockdown restrictions have eased, with Christmas spending helping to boost retail sales. However, the pandemic has hit many sectors of the economy hard during 2020, and economic output is still below pre-pandemic levels even by the end of 2020. Sectors such as international tourism and commercial aviation have been severely impacted by international travel bans, and are expected to show protracted weakness, lagging the broader economic recovery,” he said.
Biswas said full-year economic contraction likely settled at 8.9 percent.
“The outlook for 2021 is for a strong economic recovery based on gradual roll out of Covid-19 vaccines during 2021 in the Philippines as well as a strong economic rebound in key export markets such as the US, China and the EU (European Union),” the IHS Markit chief economist said.