Philippine Economy Signals Shaky Rebound From Worst of Virus

(Bloomberg) -- The Philippines’ economic contraction moderated in the third quarter by less than forecast, signaling an unsteady recovery from the pandemic even as movement restrictions were relaxed and businesses reopened.

Gross domestic product shrank 11.5% in the three months through September from a year earlier, an improvement from the second quarter’s revised 16.9% drop. The median forecast in a Bloomberg survey of 20 economists was for a 9.6% decline.

Compared to the previous quarter, the economy expanded 8%, below the median estimate of 8.9% among seven economists surveyed, Tuesday’s data showed. The first sequential growth this year shows the economy is on the mend heading into 2021, Acting Economic Planning Secretary Karl Chua said.

“The economic team is optimistic that the worst is over for the country,” Chua said, adding that officials would reassess their economic projections in light of Tuesday’s data. “The path is clearer to a stronger bounceback in 2021.”

The peso fell 0.2% to 48.25 per dollar as of 11:08 a.m. in Manila. The country’s benchmark stock gauge rose more than 3%, joining a rally in Asia on vaccine optimism.

The quarter-on-quarter growth comes after two straight periods of contraction, including a revised 14.9% drop in the second quarter, when the economy entered recession amid Southeast Asia’s second-worst Covid outbreak.

“While growth is going in the right direction, it will take a while until pre-pandemic production is attained,” said Eugenia Victorino, head of Asia strategy at Skandinaviska Enskilda Banken AB in Singapore. “The risk is the longer the recovery takes, the more permanent the destruction of incomes become. This will cap growth momentum going forward.”

Consumer and business sentiment remain weak after a stricter quarantine was reimposed in Manila for two weeks in August. Unemployment rose in the capital region, which accounts for about a third of the economy, even as the nationwide jobless rate eased in July from a record high in April.

What Bloomberg Economics Says...

“Another double-digit slump in Philippine GDP underscores the challenge of reviving the economy amid an uncontained virus outbreak, ongoing containment measures and restrained fiscal support. While the loosening of movement restrictions should help to release some pent-up demand in the months ahead, we anticipate the economy will remain in annual contraction in 4Q.”

-- Justin Jimenez, Asia economist

Fading Potential

No major sector performed strongly in the third quarter, according to Nicholas Mapa, economist at ING Groep NV.

“More worrisome is the sustained weakness in capital formation, which points to fading potential output and slower growth for quarters to come, no matter how much government pushes to reopen,” he said.

Tuesday’s data showed:

• The agricultural sector expanded 1.2% year-on-year
• Industry contracted 17.2% compared to a year earlier
• Services were down 10.6% from the year-ago period

The central bank, which is scheduled to review monetary policy Nov. 19, will likely retain its easing measures until long-term economic growth and job targets are reached, Governor Benjamin Diokno said Nov. 5. So far this year, the bank has cut its key rate by 175 basis points, eased some lending rules and boosted money supply.

The government is banking on next year’s record 4.5 trillion-peso ($93.5 billion) budget to boost an economy expected to contract by as much as 6.6% this year. Timely passage of the budget is crucial in attaining the 6.5%-7.5% growth projection for next year, with Chua estimating that each day of delay results in 1.1 billion pesos not spent.

Chua said the government won’t revert to stricter curbs on movement to fight the pandemic, and will instead pursue a strategy of implementing minimum health standards.

“Managing risks instead of avoiding them will allow us to safely open more of the economy,” he said. “This will also put the Philippines on its solid growth and development trajectory.”

©2020 Bloomberg L.P.