Philippine GDP shrinks a record 9.5% in 2020



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Gross domestic product (GDP) contracted 9.5% in 2020, the worst in the history of the Philippines. – PHILIPPINE STAR / MICHAEL VARCAS

By Beatrice M. Laforga, Reporter

THE PHILIPPINE ECONOMY hisffrecorded its worst annual contraction on record in 2020, even after gross domestic product (GDP) contracted at a slower pace in the fourth quarter, the statistics agency said on Thursday.

Preliminary data from the Philippine Statistics Authority (PSA) showed that the country’s GDP contracted 8.3% in the fourth quarter, reversing the 6.7% growth in the fourth quarter of 2019. this was better than the -11.4% revised in the third quarter. and the record -16.9% in the second quarter.

Throughout the year, GDP plummeted 9.5%, the steepest economic contraction in Philippine history, according to the PSA, which began collecting annual data in 1947.

This was also the Philippines’ first economic contraction in more than two decades or since the -0.5% observed in 1998 amid the Asian financial crisis. It also exceeded -7% in 1984 and -6.9% in 1985, near the end of the Marcos regime.

Full-year GDP last year hit the low end of the 8.5-9.5% decline projected by the Development Budget Coordination Committee (DBCC), and was in line with the median estimate Business world poll.

“The year 2020 will be remembered as the most difficult year of our lives. The road ahead is still challenging, but now there is light at the end of the tunnel, ”Acting Secretary for Socio-Economic Planning Karl Kendrick T. Chua said Thursday at a briefing.

The prolonged lockdown, considered one of the strictest in the world, was implemented by the government last year to curb the spread of the 2019 coronavirus disease (COVID-19), but it came at a “huge cost” to the economy, he said.

Chua estimated that quarantine restrictions cut family spending by P801 billion or an average of P2.2 billion per day in 2020.

“The drop in consumption translates into a total loss of revenue of around P1.04 trillion in 2020 or an average of around P2.8 billion per day. On a per capita basis, annual household income decreased by about P23,000 per worker, but this average masks large differences between sectors and jobs. Some workers were much more affected, while others lost their jobs completely, ”he said.

Quarter after quarter, the economy grew by 5.6% seasonally adjusted as more businesses were reopened and more forms of public transportation were allowed to operate.

“However, it also shows the limits of economic recovery without a major relaxation of our quarantine policy,” said Mr. Chua.

Private consumption, which represents 70% of GDP, remained weak, falling 7.2% during the fourth quarter.

“Restrictions on the demand side, particularly on the mobility of children and, therefore, families, prevented private consumption from reappearing with more force,” said Chua.

President Rodrigo R. Duterte recalled on Monday an order that allowed children up to 10 years old to leave, citing the risk of infection by a more contagious strain.

All major sectors contracted in the fourth quarter, led by industry (-9.9%), services (-8.4%) and agriculture (-2.5%).

“However, we see green shoots of recovery. Investments had a slower contraction of -29.0% from -41.6% in the previous quarter. Both private and public constructions saw improvements, but travel restrictions between provinces have prevented many workers from returning to work, ”said Mr. Chua.

Government spending also grew 4.4% in the last three months of 2020, despite a high base in 2019, Chua noted.

Meanwhile, gross national income (GNI), the sum of the nation’s GDP and the rest of the world net primary income (INP), contracted 12% during the October-December period from the 5.8% growth in the same period of 2019. By 2020, it plummeted 11.1% compared to 5.2% in 2019.

REBOUND NOT PROBABLE IN 2021
While the outlook for 2021 is “encouraging,” Mr. Chua said the economy is likely to return to the pre-pandemic level in mid-2022 with further easing of quarantine restrictions, accelerating the launch of the vaccine and keeping infections in check. for COVID-19 “at the lowest possible level.”

The DBCC is targeting growth of 6.5-7.5% this year and expects the economy to expand further by 8-10% in 2022.

“A further opening of the economy in 2021 will require a careful and calibrated approach given the risks of new virus strains. However, prolonging the status quo of community quarantine and risk aversion is not an option, ”said Mr. Chua. He suggested increasing public transport capacity, a gradual return to face-to-face schooling, and broadening the age group of people who are allowed to go out, but with safeguards.

Chua said the 4.5 trillion peso spending plan, a larger budget for infrastructure projects and the approval of key economic bills will help drive economic recovery.

“Despite the 9.5% contraction in the economy, we do not have the authorities to launch any kind of stimulus to offset the recession, both on the monetary and fiscal front,” said senior economist at ING Bank NV Manila Branch. Nicholas Antonio T. Mapa, who estimated that GDP will remain in negative territory this quarter before rising 13% in the second quarter due to the low base of 2020.

Mapa said household spending is likely to decline this year as the unemployment rate is likely to remain high. He noted that private investment will not “return significantly” as long as bank loan growth remains subdued.

“With only a modest rebound in government outlays expected in 2021 and with the trade balance forecast to remain in deficit, we do not see a marked rebound in economic activity with GDP growth driven primarily by base effects with the economy still without substantial momentum to drive growth back to the 6% level, “he added.

Capital Economics economist Alex Holmes said the economy is likely to remain 10% smaller compared to its pre-pandemic level this year as quarterly growth is expected to slow by 2-3 %, with the interannual rate. recovery driven mainly by base effects.

“The vaccination would change the rules of the game for the economy, since it would allow to eliminate the restrictions of social distancing and to resume the arrival of tourists. But widespread inoculation doesn’t seem likely until at least next year. The Philippines so far has not secured enough vaccines to cover its population and faces many logistical challenges, including running a vaccination program on its approximately 2,000 inhabited islands, ”he said in a note Thursday.

Meanwhile, the Makati Business Club (MBC) hopes that the economic boost from a successful implementation of the vaccination program “will safely trigger rehiring and hiring for new jobs.”



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