In an online briefing, economists at First Metro Investment Corp, an investment house, and University of Asia and the Pacific projected gross domestic product (GDP) to shrink between 8-9% year-on-year in 2020.
If realized, the scale of contraction would be the largest on record, beating the previous low of 7% under the Marcos dictatorship in 1984. “We’re now in a rough patch,” said Victor Abola, economist at UA&P School of Economics.
“We just saw very bad figures on GDP led by domestic demand, which used to be our main driver,” he added.
As it is, GDP, the sum of all products and services, already reached a grim quarterly milestone from April to June after sinking 16.5% year-on-year. The high-end of FMIC and UA&P’s annual forecast matched the first half tally of 9% slump, although this may still go up and down depending on third and fourth quarter performance.
That said, the projections were more pessimistic than the Duterte government’s own assumption of up to 5.5% decline this year. Last year, the economy expanded 6% annually.
A tepid household spending, which typically accounts for around 70% of GDP, is to blame for the dismal outlook, as most Filipinos remain indoors even with quarantine controls in most areas, including Metro Manila, loosened since June.
Bernardo Villegas, another UA&P economist, said people are still “very hesitant” to spend, making any economic recovery difficult to achieve. “Our people are still psychologically afraid even if things are improving. Our people is still suffering from the pandemic of fear,” he said.
The central bank has stepped in to bring down interest rates to record-lows so that consumers may borrow funds at cheaper rates for banks. But Villegas said any monetary stimulus is being offset by a public “not interested in spending.”
“If we have people who are very hesitant and even investors are also very hesitant, even if interest rates are low and banks are willing to (extend) loan…, we will not see recovery,” he explained.
Fiscal stimulus awaited
A potential savior would be the government if only officials are able to come up with a “good level of stimulus,” said Francisco Sebastian, FMIC chair, in the same briefing. As of the moment, the Duterte administration is awaiting the passage of Bayanihan to Recover As One bill, its preferred stimulus measure that provides up to P162 billion in new allotments under the bigger Lower House version.
The government has been criticized for its hesitation to spend more and counter the pandemic’s economic repercussions, for fears doing so would damage the Philippines’ creditworthiness, but Sebastian sided with the economic managers.
I’m very respectful of (Finance Secretary Carlos Dominguez III’s) prudence in making sure we don’t over-resuscitate the (economy) because it will have long-term-effects,” Sebastian said.
“We don’t want to break institutions. We don’t want to break our credit ratings. We don’t want to overspend. We don’t want to be accused of spending habits that may haunt us in the future,” he added.
Despite the pandemic, Cristina Ulang, FMIC’s research head, said investors appear to be looking forward to next year when a rebound between 6-7% is expected by government. The local bourse neared the 6,000-mark anew on Wednesday after ultimately ignoring a worse than expected GDP print in the second quarter.
“What the market is focusing now is the 2021 budget— that I think, is the focus now and its impact on next year,” she said.