The Philippine economy contracted in the first three months of 2020 as restrictions to stem the coronavirus outbreak shut most businesses and sapped consumption, a trend seen worsening in the current quarter.
Gross domestic product fell 0.2% in the first quarter compared to a year ago, using 2018 as the new base year, the Philippine Statistics Authority said Thursday. That was worse than the median estimate of a 2.9% growth in a Bloomberg survey of economists and was the first contraction since the fourth quarter of 1998, according to the agency.
GDP slumped by 5.1% in the three months ended March 31 compared to the previous quarter, deeper than the 2% contraction expected by economists. That’s the worst quarter-on-quarter performance on record, according to data compiled by Bloomberg.
“Saving hundreds and thousands of lives has come at a great cost to the Philippine economy,” Acting Planning Secretary Karl Kendrick Chua said at a virtual briefing. The second quarter will be worse because of the lockdown since mid-March that covers the capital and much of the Luzon island that accounts for more than half of domestic output.
Last quarter’s print surprised many analysts including Standard Chartered Plc’s Chidu Narayanan and Natixis Asia Ltd’s Trinh Nguyen who both see more policy rate cuts on the horizon.
What Bloomberg’s Economist Says:
“The surprise contraction in Philippine first quarter GDP underscores the severity of the coronavirus pandemic, and highlights that a deeper slump is yet to come. With the lockdown on Luzon effectively shutting down the country’s main economic engine from mid-March, that is paving the way for a much steeper plunge in 2Q.”
Justin Jimenez, Bloomberg Economics
The Philippine Stock Exchange Index slid as much as 0.7% while the peso fell as much as 0.2% before trading little changed at 12:02 p.m. in Manila.
President Rodrigo Duterte plans to gradually reopen the economy after May 15, possibly allowing construction, manufacturing and other essential services to restart, his spokesman said on April 28. With improved testing capacity and as curbs are lifted in some areas, the economy may see a “good recovery” in the second half, Chua said.
Rescue Plan
The Philippines is drafting an economic recovery plan, Chua said, to support hard-hit industries. To raise funds, the government sold a $2.35 billion dollar bond and is negotiating as much as $7 billion from multilateral lenders.
The government will “need to beef up the stimulus rescue plan,” said Nicholas Mapa, a Manila-based economist at ING Groep NV. “Monetary policy has done much of the heavy lifting and we look for the government to super size the current recovery bill given that 1Q is but a preview of the steep drop we’ll see in 2Q and 3Q.”
Bangko Sentral ng Pilipinas has cut the benchmark rate by 1.25 percentage points and banks’ reserve requirement ratio by 2 percentage points this year. It has also provided the government a $6 billion lifeline, purchased its bonds in the market and had eased regulations to support banks and borrowers.
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