Philippine Economy Cools as Lockdowns Linger to Halt Virus

(Bloomberg) -- The Philippine economy fell back into contraction in the second quarter compared to the previous three months, as elevated numbers of Covid cases and extended lockdowns place the nation among Asia’s laggards.

Gross domestic product shrank a seasonally adjusted 1.3% in April-June from the previous quarter, the country’s statistics agency said, compared to the 1.1% contraction expected by economists surveyed by Bloomberg. That was down from a revised 0.7% growth on a sequential basis to start the year.

“It’s back to a contraction, suggesting the impact of the lockdowns and the resurgence in Covid-19 cases in the second quarter was significant,” said Euben Paracuelles, chief Asean economist at Nomura Holdings Inc. in Singapore. “It’s clear from today’s data that, with Manila now back in enhanced community quarantine and vaccination rates still among the slowest in the region, another quarter-on-quarter contraction in the third quarter is a rising risk.”

During the April-June period, Southeast Asian economies from Indonesia to Vietnam began facing severe Covid outbreaks fueled by the more contagious delta variant. In the Philippines, where the main economic hub around the capital has been under repeated lockdowns, the official 6%-7% GDP growth estimate for this year will likely come under review.

“The economic recovery will likely face a similar setback in the third quarter as mobility restrictions returned in August with the country now facing a surge in Covid-19 infections due to the Delta variant,” said Nicholas Mapa, senior economist at ING Groep NV in Manila. “We will likely need to rework out full year GDP forecast for 2021.”

The Philippine Stock Exchange Index fell as much as 0.6% after the data, reversing an earlier gain. The gauge was down 0.5% at 6,599.65 as of 11:26 a.m., while the peso was little changed at 50.390 to the dollar.

What Bloomberg Economics Says

“The sequential contraction for Philippine GDP in the second quarter underlines our view that the economy’s recovery is likely to remain very gradual... With the capital region back under the tightest restrictions to contain the spread of the delta variant, the economy is set to take another hit in 3Q.”

-- Justin Jimenez, Asia economist

To read the full note, click here

Compared to a year earlier, GDP rose 11.8%, the statistics authority reported Tuesday, the fastest growth since 1988. That beat the 10.9% median growth among analysts surveyed, but was flattered by comparison to the record contraction a year ago amid a long and harsh lockdown.

GDP increased 3.7% year-on-year in the first half of 2021.

“The significant improvement in almost all economic indicators highlights the gains from our risk-based approach to quarantines and our strong economic potential,” Economic Planning Secretary Karl Chua said at a briefing in Manila. “Had we not managed the risk better, allowed more sectors to operate, the seasonally adjusted quarter-on-quarter could have been worse.”

Central Bank

Chua said the country’s economic managers are “constantly reviewing” the data, with the second-quarter reading helping reach the growth estimate, but the current restrictions will have more impact. The lockdown must be used to speed up the inoculation drive, he said.

The Philippine central bank, which holds its policy meeting Thursday, could hint of further easing to help an economy that analysts expect to be among the slowest in the region to recover from the pandemic.

Alex Holmes, Asia economist at Capital Economics Ltd., said Philippine GDP remains about 9% below its pre-pandemic level and 17% behind the pre-crisis trend. The firm cut its forecast for the year to 5% GDP growth, from 6% expected earlier.

“The weakness of the recovery raises the chance that the central bank will cut rates again,” Holmes wrote in a research note. “Our forecast is that the BSP will lower its policy rate in September, but an early cut at its Thursday meeting cannot be ruled out.”

More details from the briefing:

• Industrial production rose 20.8% year-on-year in the second quarter
• Consumer spending +7.2%
• Investment was up 75.5%
• Services rose 9.6%
• Government spending fell 4.9%

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