PH economy plunges by record -9.5% in 2020 as Q4 GDP maintains slump

Metro Manila (CNN Philippines, January 28) — The Philippine economy shrank by another 8.3% in the last three months of 2020 as the COVID-19 pandemic continues to cripple consumer spending and business activity, bringing full-year economic growth to -9.5% in 2020.

This brought the overall economic performance for the entire year to -9.5%, the sharpest since the PSA started collecting data on annual growth rates in 1946, National Statistician Claire Dennis Mapa said during a media briefing.

The Duterte administration's economic managers earlier conceded to a possible -8.5% to -9.5% economic decline for the country in 2020 in light of the lingering public health crisis. The full-year figure for 2020 is close to the -9.6% plunge projected earlier by the International Monetary Fund.

The Philippine economy grew by 6% full-year in 2019.

On a positive note, the contraction in the October-December quarter was tamer than the 11.5% drop recorded the preceding quarter. The National Economic and Development Authority said the economy improved by 5.6% quarter-on-quarter, but added this only proves that further recovery would be limited if there is no major relaxation of quarantine rules.

While most parts of the country are already under the relaxed modified general community quarantine, several areas like economic hub Metro Manila still remain under the stricter GCQ.

In the 2020 fourth quarter, all three major sectors of the economy retreated, with services declining the most at -9.9% and industries at -8.4%. Agriculture, which posted the sole positive growth among these sectors in the third quarter, saw production go down by 2.5% in the fourth quarter.

Agriculture also posted the lowest negative growth for the entire year at -0.2%. The industrial sector logged a 13.1% decrease, while services fell at -9.1%.

Back-to-back typhoons pummeled parts of Luzon in October and November, leaving billions of pesos worth of damage to crops.

A CNN Philippines poll among economists last week yielded a forecast average of -8.31% for the fourth quarter, in line with expectations the Philippines will stay in recession but at a milder pace.

Bank of the Philippines lead economist Jun Neri said the "conservative" economic stimulus bills passed in Congress also failed to mitigate the economic contraction in the last quarter of 2020.

"They could have approved more aggressive bills that could have provided more funding for a stronger fourth quarter. Public construction continues to decline year-by-year every fourth quarter," Neri said in an interview on CNN Philippines' The Final Word on Thursday.

Household spending still down with quarantine, age restrictions

Acting Socioeconomic Planning Secretary Karl Kendrick Chua noted that households still spent less during the fourth quarter even after the government eased certain restrictions on the supply side through allowing higher capacities for public transport and business operations. Private consumption fell by 7.2% year-on-year in the whole of 2020.

The official said this is because hindrances to children's mobility, and by extension their households, have gotten in the way of a rebound in private spending, a huge chunk of the country's economic activity.

Age restrictions are still in place nationwide, with President Rodrigo Duterte recently reversing the decision of the Inter-Agency Task Force for the Management of Emerging Infectious Diseases to allow children aged 10 to 14 to go outside their homes in areas under MGCQ.

"Economic growth will be hard-pressed to make a stronger economic recovery if children and families are restricted from participating in the economy, as up to 50% of non-essential retail sales are driven by family spending," said Chua.

Quarantine restrictions likewise resulted in household spending losses of ₱801 billion, or an average of around ₱2.2 billion per day, for 2020, he added. Coupled with unemployment, losses reached around ₱1.04 trillion worth of income of families, or around ₱2.8 billion per day, with a worker incurring an average annual income loss of ₱23,000.

The drop in private spending was reflective of the consumer confidence index during the fourth quarter of 2020, which the government had earlier surveyed. While the index score had improved during the period, it still remained in negative territory, indicating that pessimists outnumber optimists.

However, when asked about providing additional financial assistance to households, Chua said they are proposing a "package of support" that would aid both consumers and businesses instead.

"There is, I think, no point in giving more fiscal stimulus if, for instance, there is no consumer confidence to spend. There is no point in giving more subsidies if the families cannot even go out and spend," Chua said, noting individuals and firms have different needs.

Surveys previously held by the government, for instance, revealed that what they're after the deferment of fixed payments and taxes, along with lower taxation rates. These were addressed in the Bayanihan I and II, along with the Corporate Recovery and Tax Incentives for Enterprises Act, he said. Billions of pesos in cash transfers shall also be provided for under the 2021 national budget, he added.

"In other words, we have to give the support not only from instrument but from a package to address multiple concerns of businesses and individuals," he said.

Apart from consumer spending, investments also posted deep contraction along with imports and exports. Government spending, however, went up during the period.

The country has declared strict lockdowns and shut its doors to domestic and international travel during the onset of the COVID-19 pandemic in a bid to curb the spread of the coronavirus.

PH poised for a solid economic rebound

After the devastating COVID-19 blow in 2020, the government remains optimistic that efforts to ease quarantine controls could eventually rev up the economy, the Malacanang spokesperson said Thursday.

Presidential Spokesperson Harry Roque expressed bullishness the economy could bounce back this year following measures initiated to fuel economic activities.

Roque said the economy has started to recover as evident with the fourth quarter data.

"Inaasahan po natin ... ang estimate po ng mga economic planners ay maging positibo tayo," he said during the Palace briefing.

[Translation: The economic planners estimate that we will post positive growth.]

He said the government expects growth to reach 6 percent this year, and possibly even "higher" by 2022.

ING Bank senior economist Nicholas Antonio Mapa said the economic output might remain in contraction in the first quarter of 2021 before expanding the quarter after.

"With only a modest pickup in government outlays expected in 2021 and with the trade balance forecast to remain in deficit, we do not see a stark pickup in economic activity with GDP growth powered mainly by base effects with the economy still lacking substantial momentum to drive growth back to the 6% level," he added.

Neri also forecasted the same, where the country will experience a slight economic recovery by second quarter of 2021. He said the increasing mobility numbers, especially in Metro Manila, will play a big role in the national economy's partial recovery.

"Luckily, we saw a late rebound in November and December (of 2020) when more people are going to the groceries," said Neri, who sees a full recovery of the Philippine economy in 2022 if there will be no new wave of COVID-19 infections in the country.

The BPI lead economist added the economic forecasts also considered the arrival of COVID-19 vaccines in the country, when it is expected to be available in a large percent of population by the third quarter of 2021.

"Even if the vaccines come in the third quarter, things will not really be the same as 2019. This is key for the private sector to pour in investments necessary under the 'new normal,' more reliant in digital, electronics, and telecommunications," Neri said.