Steady rise in COVID-19 cases to hamper quick economic recovery – HSBC

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Metro Manila (CNN Philippines, August 10) The Philippine economy may shrink by nearly a tenth this year, double the size of the government's projected contraction, a global bank analyst said.

HSBC economist Noelan Arbis said the economy may collapse by as much as 9.6 percent in 2020, against the 5.5 percent contraction expected by the President's economic team.

"The continued rise in COVID-19 cases domestically remains a serious concern, and in our view, has dashed any hopes for a meaningful recovery in the second half of 2020," Arbis said in a market report. "Moreover, the absence of a big-ticket stimulus is likely to put a damper on the recovery in the year ahead."

The Philippines has been reporting thousands of new cases daily, with total infections nearing 130,000 as of Sunday — the highest in Southeast Asia. Of these, 67,675 patients have recovered while 2,270 have died.

The government reported a 16.5 percent nosedive in the national output during the second quarter, the steepest decline ever recorded since at least 1981. This confirmed that the economy has entered a recession, with over ₱800 billion in output value wiped out versus last year.

Household spending, which has long been the backbone of the economy, declined year-on-year as the COVID-19 lockdowns in April and May kept most Filipinos at home. The return of Metro Manila — as well as nearby provinces Bulacan, Rizal, Laguna, and Cavite — would also douse a possible growth rebound for the third quarter, HSBC said.

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"Reduced remittances — as a result of the growing amount of displaced overseas Filipino workers — and rising unemployment are also likely to keep a lid on private consumption growth in the quarters ahead," Arbis added.

The Philippine Statistics Authority reported that the pandemic left 7.3 million Filipinos jobless as of April, which could have risen in succeeding weeks.

The analyst added that lockdowns abroad also led to a slump in consumption, which also had a negative effect locally. He also pointed out that "the absence of a big-ticket stimulus program from the government" will keep near-term recovery "shallow."

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The House of Representatives has just approved a ₱162-billion economic stimulus program, but the economist said this was measly compared to what industries really need to get back on their feet.

"We believe this is not nearly enough to offset the substantial impact of the pandemic on the economy. Moreover, private construction has fallen and is unlikely to recover significantly in the near-term, as corporations protect their bottom line," he added.

Finance Secretary Carlos Dominguez III has repeatedly said that the over ₱1-trillion stimulus program laid out by economist lawmakers in the House was not "fundable," adding that he refuses to spend all of the government's funds for COVID-19 response in one go as no one knows know how long the crisis will last.

For his part, Bangko Sentral ng Pilipinas Governor Benjamin Diokno said the negative feedback on the second quarter performance was "grossly exaggerated," adding it was only a blip rather than a result of structural weaknesses.

"The setback is temporary. Recovery can come quickly once consumer confidence return, factories fired up, construction activity particularly the BBB (Build, Build, Build) Program is ramped up, and transportation is fully restored," Diokno told reporters.

"In the near future while waiting for the vaccine, policy makers will opt for targeted, localized, village-level lockdowns. Hence, the adverse economic impact on jobs, incomes, and livelihoods will be subdued," he added.

At present, only 50 percent of businesses are operating with latest stay-at-home rules. Authorities said the country can no longer afford prolonged business shutdowns, which has stifled consumer spending and will result to more people going hungry and jobless.