PH GDP contracts in Q1, first in 22 years

THE Philippine economy shrank 0.2 percent in the first quarter of 2020, its first contraction in over two decades as the widespread lockdown measures to contain the Covid-19 outbreak shut most businesses and crippled the economic output.

A negative gross domestic product (GDP) growth was last seen in 1998, when the country’s economy contracted 0.5 percent during the Asian financial crisis.

The first quarter GDP figure was a deep dive from 6.7 percent in the fourth quarter and 5.7 percent in the first quarter of 2019.

In a virtual briefing Thursday, May 7, 2020, Acting Socioeconomic Planning Secretary Karl Kendrick Chua said the economic growth could likely contract further in the second quarter given the prolonged enhanced community quarantine (ECQ) in the country’s major urban centers.

“The first quarter I think is still respectable given the very difficult environment that we are in,” the country’s chief economist said. “Second quarter might be worse.”

“Containing the spread of the virus and saving hundreds of thousands of lives through the imposition of the ECQ has come at great cost to the Philippine economy,” Chua said.

The country is on a brink of an economic recession, which happens in two straight quarters of negative growth.

The GDP contraction came earlier than expected as most analysts had projected it to occur in the second and third quarters.

“Where we are now could potentially be the worst global recession since the Great Depression of the 1930s,” Chua said.

GDP tracks the health of a country’s economy. It represents the value of all goods and services produced over a specific time period.

Adapt, innovate fast

The business sector in Cebu has come to terms with the economic pain that is now prevailing.

“The businesses have, by now, accepted this. We are finding ways to adapt and adjust to the new normal,” Mandaue Chamber of Commerce and Industry president Steven Yu told SunStar Cebu, saying the growth contraction was “much worse than expected.”

“However, it will be much worse in the US and other developed countries. With our strong fundamentals, we are in a much better position as reflected in our peso strength. This economic contraction is a global phenomenon, and it’s unavoidable given the circumstances,” the business leader said.

Yu was optimistic of businesses’ eventual recovery from the economic crisis.

“The key to survival in this pandemic crisis is to capture where the trend is going and to innovate fast. The governments all over the world have responded with monetary easing and stimulus measures. It is up to businesses to adapt and innovate to tide it over the next two years of global economic recession,” he said.

The country’s economic managers initially projected that the GDP could contract by as much as 0.8 percent this year, assuming the outbreak lasts until June.

Economic restart

The government plans to gradually restart the economy on May 15, allowing specific industries to reopen. The capital region and other high-risk areas have been on lockdown since March 16.

The country is working on an economic recovery plan as it raised funding through a US$2.35 billion bond sale and as much as $7 billion in concessional loans from multilateral lender.

On the demand side, household consumption slowed by 0.2 percent as almost all items posted weaker growth except for household spending on health which grew by 11.5 percent, faster than the 6.9 percent in the last quarter of 2019.

State spending also grew by 7.1 percent, up from 6.4 percent the same quarter last year albeit slower than the 17 percent in the fourth quarter last year.

“On the supply side, all major sectors of the economy posted weaker growth as only those that provide essential goods and services were allowed to operate during the ECQ,” Chua noted.

The services sector posted a growth of 1.4 percent, while the industry and agriculture sectors declined by three percent and 0.4 percent, respectively.

“These are extraordinarily trying times and the road ahead of us continues to be challenging and uncertain. Bear in mind that this crisis, like others before it, shall also pass, especially because we are working together as a nation,” Chua said.

The Philippine government earlier set an economic growth target range of 6.5 to 7.5 percent for 2020.

According to the International Monetary Fund, the global economy is projected to contract by three percent this year and could beat the 1.7 percent drop in GDP recorded a year after the 2008 global financial crisis.