Philippine GDP Shrinks More Than Expected Amid Virus Fight

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The Philippines’ economy is struggling to gain momentum as elevated numbers of Covid cases hamper reopening efforts and destroy jobs.

Gross domestic product fell 4.2% in the first quarter from a year ago, the statistics authority said Tuesday, below all estimates in a Bloomberg survey of economists.

The Philippines is expected to manage Southeast Asia’s slowest recovery this year from the pandemic-driven recession. A return to stricter curbs in Manila and other key economic areas threatens the government’s goal -- currently up for review -- of at least 6.5% growth this year. It’s also expected to drive unemployment, which has yet to show considerable improvement.

“The challenge right now is to restore business and consumer confidence,” said Dan Roces, chief economist at Security Bank Corp. in Manila. “At this pace, the Philippines may only return to pre-pandemic GDP levels in the second half of 2022 at the earliest.”

The benchmark Philippine stock index slid 0.3%, while the peso was little changed at 47.860 to the dollar as of 11 a.m. local time.

“As we learn to live with the virus, we have recalibrated our approach to the pandemic by managing risks instead of just imposing blanket quarantines,” Economic Planning Secretary Karl Chua told journalists in a video briefing. “We will continue to be guided by the latest health and economic data in order to safely reopen the economy once this present spike has subsided.”

GDP grew 0.3% on a seasonally adjusted basis in the first three months of the year from the last quarter of 2020. That compares with an estimate for 0.8% growth.

What Bloomberg Economics Says...

“The deeper-than-expected slump underscores the Philippines’ long road to recovery. Rekindling household consumption – the economy’s main engine – will be key to reviving growth, but that will prove difficult as long as vaccine progress lags and the virus remains uncontained.”

-- Justin Jimenez, Asia Economist

“Philippines and other more domestically driven economies will be more vulnerable compared to economies in the region that are more trade-dependent,” said Mitul Kotecha, a strategist at TD Securities Ltd. in Singapore. The GDP miss “increases the risks of a policy rate cut this week,” though the central bank is more likely to lower banks’ reserve requirement ratio, he added.

Rates Focus

The Bangko Sentral ng Pilipinas, which has held the benchmark rate at a record-low 2% since November, will announce its rate decision Wednesday. It’s expected to keep monetary policy loose all year.

Chua said the government will review the impact of first quarter numbers on its full-year target. He said he doesn’t expect the contraction to continue in the second quarter despite the lockdown implemented at the start of the year.

Other key points from the GDP briefing:

• Industrial production fell 4.7% from a year earlier, while agricultural production dropped 1.2%
• Exports declined 9%, and investment was down 18.3%
• Consumer spending fell 4.8%
• Government spending rose 16.1%

“I believe an improvement in consumer and business confidence is essential before we see an increase in corporate credit growth and business investment,” said Chidu Narayanan, Asia economist at Standard Chartered Plc in Singapore. “A substantial increase in government spending is required to kickstart the economy before private consumption and investment increases.”

©2021 Bloomberg L.P.