Gov't sees PH economy shrinking by 5.5% in 2020 with deeper slump, return to MECQ

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Metro Manila (CNN Philippines, August 6) – The economic downturn is worse than previously expected, with government now seeing a deeper 5.5 percent contraction for 2020.

Acting Socioeconomic Planning Secretary Karl Kendrick Chua said in a media briefing on Thursday that the economy will likely shrink by 5.5 percent this year, deeper than the 2-3.4 percent contraction forecast back in May.

The rebound is seen to be quick, with the Development Budget Coordination Committee expecting a sharp 6.5-7.5 percent growth by 2021 and in 2022, counting on the reopening of the industry and services sectors and the revamped "Build, Build, Build" infrastructure program.

RELATED: 13 new in, 8 old out from flagship infrastructure projects, Dizon says

This year's budget gap will be even wider at 9.6 percent of gross domestic product, the widest in recent years and bigger than the 8.4 percent deficit previously expected. The state expects to spend ₱4.34 trillion against a drop in revenue collections seen at ₱2.52 trillion –– a ₱1.8-trillion shortfall.

The barometer Philippine Stock Exchange index climbed on Thursday despite the bad news. Luis Limlingan, managing director at brokerage firm Regina Capital, said investors have "accepted the weakness in the economy" as the Philippines joined other nations in experiencing a recession.

​Deeper Q2 slump

The new economic projection came after the Philippine Statistics Authority reported a 16.5 percent fall in national output in the second quarter, the steepest on record since 1981. The economy slid by 9 percent in the first six months, but Finance Secretary Carlos Dominguez III said this would have been worse at -11.5 percent if the government did not boost spending for emergency response and social services.

Chua said the decision also factors in the return of Metro Manila, Bulacan, Rizal, Cavite, and Laguna to strict lockdowns for two weeks this August to slow down COVID-19 infections.

"The short-term shutdown will be good in the long run if less people will be infected in the future and more people can work," Dominguez added.

However, he admitted that the lockdown decision was "not anticipated," so no funds have been set aside for a possible third wave of cash assistance under the state's Social Amelioration Program.

RELATED: Palace looks to Congress, LGUs for cash aid to poor families in new lockdown

Dominguez earlier called for a scaling down of movement restrictions in Metro Manila and Calabarzon as soon as possible, as these regions account for two-thirds of national output.

For now, the state is awaiting the passage of the ₱140-billion Bayanihan to Recover as One Act, which would provide stimulus to boost economic activity. Subsequent responses will be covered by the ₱4.5-trillion national budget for 2021, he added.

The Corporate Recovery and Tax Incentives for Enterprises or CREATE Act, will likewise support more businesses, but will lead to lower tax collections.

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.

READ: PH can’t afford to extend MECQ as economic costs pile up – Roque

​Other forecasts

The DBCC also announced revisions to other economic projections.

Inflation is seen benign, with the 2020 estimate narrowed to 1.75-2.75 percent while a 2-4 percent range is given for the next two years. The exchange rate is also seen relatively steady at ₱50-₱52 versus the US dollar this year, and will trade within the ₱50-₱54 range until 2022.

Goods imports will contract by 18 percent while exports will shrink by 16 percent, before recovering in the next two years. Remittances will slip by 5 percent in 2020 before returning to its usual 4 percent growth pattern.

New state borrowings will amount to ₱3 trillion, with 75 percent to be sourced locally and the rest from abroad.

RELATED: PH debt breaches ₱9T in June as gov't borrows more for pandemic response

The fiscal gap will be relatively narrower in succeeding years, which will settle at 8.5 percent of GDP for 2021 and 7.2 percent in 2022. However, these are bigger compared to previous ceilings at 6.6 percent and 5 percent, respectively.

"Despite these adjustments in deficit spending, the DBCC is confident that the national government’s debt will be kept at a sustainable and responsible level, within the 60 percent internationally-recommended debt threshold, by 2022," the economic team said.

Finance Assistant Secretary Tony Lambino earlier said authorities will not let the debt burden go beyond 50 percent of GDP, vowing fiscal prudence.