PH economy slips by another 11.5% in Q3 as it continues to reel from COVID-19 restrictions

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(FILE PHOTO)

Metro Manila (CNN Philippines, November 10) — The Philippine economy shrank by another 11.5% in the third quarter as the COVID-19 crisis continues to hold back consumer spending and business activity.

The Philippine Statistics Authority said existing quarantine rules stood in the way of an economic rebound. However, the July-September decline was shallower than the record 16.9% contraction in the second quarter.

​National Statistician Dennis Mapa said there were big improvements in domestic activity, with the national output rising by 8% from the second quarter.

Last year, the economy expanded by 6.3%. ​Market watchers did not expect a fall this steep, with a CNN Philippines poll of nine economists yielding -9% average estimate. 

Only agriculture managed to grow from a year ago, raking in a 1.2% increase in production. The industrial sector slid by 17.2%, while services – once the growth leader given a bustling labor market – dropped by 10.6%, also pulling down the headline figure the most.

However, data showed all three sectors saw stronger activity when compared to the second quarter, led by a 9.5% uptick in services.

'Worst is over'

Acting Socioeconomic Planning Secretary Karl Kendrick Chua said the relatively perkier economic activity in the third quarter was a good sign even as the country remains in recession.

"The economic team is optimistic that the worst is over for the country," Chua said in the virtual briefing, pointing out that the local economy is "on the mend."

The economy has suffered the biggest blow due to the pandemic, which has forced the country to impose strict lockdowns, and cut off local and international tourism to prevent further infections.

Metro Manila, the country's main economic hub, reverted to a two-week lockdown in August to slow down infections​. Stay-at-home rules have been loosened since then. ​

Malacañang is saddened to hear the country's GDP sank by 11.5% in the third quarter.

But the Palace is also relieved, saying the figure shows the economy is recovering.

"Ang mensahe po natin: nandiyan pa po si COVID, pero alam na natin po kung papaano maiiwasan si COVID. Kinakailangan na po talagang buksan ang ekonomiya [We share this message: COVID is still here, but we already know how to avoid getting infected. We really need to reopen the economy further]," Presidential Spokesperson Harry Roque said in his regular media briefing.

Only Metro Manila, Batangas province, Iloilo City, Bacolod City, Tacloban City, Iligan City, and Lanao del Sur remain under general community quarantine, while the rest of the country has been placed under more relaxed rules.

Though Neri added the country's Q3 economic contraction could have been lowered to a single digit to boost the economic confidence among businesses.

"But we could have done better. We have not been able to keep up with our neighbors since all of them are already in a single-digit decline since the second quarter," Neri told CNN Philippines' Rico Hizon on Tuesday night.

He projects the government can still achieve a single-digit contraction if proper measures were implemented to curb the coronavirus and mitigate the economic impact of past typhoons that ravaged some parts of the country.

"Maybe give more priority to health-related expenditures that will boost the confidence of consumersm: Neri pointed out. "Tracing in the Philippines is very behind our neighbors and this gives the people the less confidence to go out."

However, the group IBON pinned the blame on a "stingy" government, saying the Duterte administration's refusal to spend more on stimulus programs is keeping poor families and small businesses struggling.

Government spending eked out a 5.8% increase for the quarter, while all other spending drivers remained depressed. Household consumption, which has long been driving activity, plunged by 9.3% from last year and pulled down the overall gross domestic product (GDP) by 6.6%.

RELATED: Consumer confidence plunges to all-time low, to stay bleak for the rest of 2020 – BSP

Spending on valuables, including jewelry, suffered a 53.2% nosedive. Construction was the second-worst performer at -43.5%, followed by durable equipment which dropped by a third.

Neri stated that consumer confidence among Filipinos in Q3 somehow improved with the relaxation of quarantine measures.

"People are buying more restaurant food, clothes, and footwear than in the second quarter," he said. "The only sector that does not see improvement in spending is the recreation sector."

In terms of production, financial and insurance activities led the charge with a 6.2% growth, followed by a 4.5% increase in public administration and social security. Agriculture as well as information and communication managed to grow as well. But transportation and storage, accommodation and food service activities, and other services suffered deep losses.

The Inter-Agency Task Force for the Management of Emerging Infectious Diseases has since relaxed quarantine rules and allowed more industries to return to full capacity. More commuters have also been allowed to ride public transport, with the government shifting to a one-seat apart policy rather than a one-meter distancing while aboard trains, buses, and jeepneys.

Still, Chua said new rules imposed since October will usher in a "clearer" path to a strong rebound in 2021.

Deeper slump seen

The 11.5% contraction in the third quarter has rendered unattainable the original -5.5% GDP forecast by the economic team for the entire 2020, Mapa said.

The economy has suffered a 10% fall for the first nine months, and this can only be reversed if the economy pulls a miracle and expands by 6.6%, Mapa added.

"Immediately after this, the DBCC (Development Budget Coordination Committee) process will start to reassess where we are," Chua said. He noted that unemployment may average 11% while poverty incidence may range between 16% to 17.5%.

Construction projects, which was earlier touted to pave the way towards quick recovery, has not translated to sizeable gains during the period as value-adding output dropped for the quarter. Chua said among the challenges are rolling out projects with lacking requirements, sites under localized lockdown, the implementation of minimum safety protocols on site, and the entry of foreign experts who cannot fly in due to travel restrictions.

Four typhoons that hit between October and November, including the most destructive Super Typhoon Rolly which ravaged Bicol and parts of Southern Luzon, may also dampen fourth quarter activity, but Chua remained optimistic.

READ: Rolly leaves 22 dead, causes ₱14-B damage to infrastructure and agriculture

"Given the policy changes and the further opening up of the economy and the policy not to revert to stringent lockdowns, I think the trend really is further improvement in the fourth quarter. Hopefully, we will see better or positive year-on-year quarter growths starting early next year," Chua said.

Neri mentioned the government must prioritize the completion of its construction projects under the Build, Build, Build program and solve corruption-related issues to help make single-digit contraction in the last quarter of the year possible.

Economists now see an even dimmer picture for the rest of 2020, with the latest PSA report triggering downward adjustments in forecasts.

"A large driver of the rebound was the easing of strict lockdown restrictions. But with the virus still not under control, a further scaling back of containment measures will take longer, meaning life is unlikely to return to normal anytime soon," Capital Economics' economist for Asia Alex Holmes said, now seeing a -9.5% print for the full year.

Global bank HSBC also gave a -9.6% forecast. "Local mobility data remain among the weakest in the region and quarantine restrictions are still broadly in place, so the pace of the recovery is likely to remain sub-par compared to countries that have managed to contain the virus earlier," according to economist Noelan Arbis.