PH economy stays in recession in 2021 with 4.2% Q1 contraction

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Metro Manila (CNN Philippines, May 11) — The Philippine economy declined anew in the first quarter of 2021 as quarantine restrictions and the lingering COVID-19 pandemic continue to hamper business and consumer activity.

National Statistician Dennis Mapa reported Tuesday an economic contraction of 4.2% for the period, milder than the 8.3% plunge recorded in the last three months of 2020 and steeper than the 0.7% drop from January to March last year.

The country’s recent economic performance is worse than the average -2.82% growth forecast resulting from a CNN Philippines poll among analysts, in line with expectations the economy will remain in recession albeit with a softer drop.

The latest figure marks the fifth straight quarter of annual economic decline for the Philippines. According to the Philippine Statistics Authority, the longest period of negative gross domestic output for the country covered nine consecutive quarters: from the fourth quarter of 1983 to the last quarter of 1985 under the administration of former President Ferdinand Marcos.

Mapa said all three major industries logged slower economic output during the quarter. Industry declined by 4.7%, services by 4.4% and agriculture by 1.2%.

Meanwhile, other services which cover personal care, entertainment, arts and recreation were hardest hit with a 38% plunge during the quarter. This is followed by construction at 24.2%, accommodation and food service activities at 20.6%, and transportation and storage at 18.8%.

Human health and social work activities, on the flipside, grew highest from January to March by 11.7%. Public administration and defense recorded a 7.5% growth rate during the period, while information and communication expanded by 6.3%. Financial and insurance activities also grew by 5.2%.

All major expenditure items performed worse in the first quarter of 2021, except for government spending which surged by 16.1%. Gross capital formation fell by 18.3% during the period, followed by exports at 9% and imports at 8.3%.

Household spending, a major driver of the economy, also decreased by 4.8%. This is a reversal of the 0.2% growth recorded in the same quarter in 2020.

Economy improving, but quarantine restrictions in the way

Socioeconomic Planning Secretary Karl Kendrick Chua noted during the briefing that the economy is showing signs of improvement. However, he said this suggests "the limit of growth unless we see a major relaxation of quarantine level."

"Recent lockdowns are expected to shave off momentum from the economic recovery and weigh on the services sector the most, with personal services not allowed to operate due to social distancing regulations," said Moody's Analytics associate economist Eric Chiang in a market analysis.

After months of more relaxed quarantine rules, main economic hub Metro Manila and key neighbor provinces Bulacan, Cavite, Laguna and Rizal were placed under a strict general community quarantine bubble from March 22 to April 4 in a bid to curb the surge in daily infections.

The areas, collectively known as National Capital Region Plus, eventually shifted to a two-week enhanced community quarantine beginning March 29. The region then eased to modified ECQ effective until May 14.

Given the economy's recent quarterly performance, Chua emphasized the importance of taking a more calibrated approach to imposing quarantine restrictions amid the health crisis.

"Instead of having more blanket restrictions, we have more risk-managed ones wherein we open as many sectors as we can and address the highest sources of risk," said Chua, noting this is how this year's ECQ and MECQ were implemented.

Economic team "hopeful" 2021 growth target range can still be met

Despite economic activity slowing down anew in the first quarter of 2021, Chua is not writing off the possibility of achieving the 6.5% to 7.5% range the Development and Budget Coordination Committee has set for a full-year economic growth.

"We remain hopeful that as we manage the risks, we open the economy safely, implement the recovery program and accelerate the vaccine (drive), we are still able to achieve the targeted growth rate only if we work together, said Chua.

While the economic team has yet to compute how much the economy needs to grow for the rest of 2021 to meet their economic growth target band, he said he understands it would take more than 7.5% to offset the negative growth in the first quarter.

Chua added the DBCC will review first quarter data to see how this will affect the trajectory of the national economy for the rest of 2021, and how a more "risk-managed" approach to quarantine rules will help offset initial losses from tighter lockdowns.

"Our actions in the next eight months can reverse initial losses from the imposition of the ECQ and MECQ in the NCR Plus area," said the NEDA chief.

The official likewise assured another contraction for April to June is "not plausible" and can only happen if quarantine restrictions and economic activity are worse than the same period last year, which was during the height of initial lockdowns.

Multilateral institutions such as the World Bank and Asian Development Bank scaled down their growth forecasts for the Philippines this year. They predict it to dwell below the DBCC's expected range, citing factors such as delays in vaccine rollout and alarming rise in COVID-19 infections.