MANILA -- Bangko Sentral Governor Benjamin Diokno said Thursday the economy would likely continue contracting in the second and third quarters due to the COVID-19 pandemic before a "strong" recovery at the end of the year.

The Philippines gross domestic product shrank by 0.2 percent in the quarter ended March, the first contraction since 1998 due to the coronavirus crisis and the Taal Volcano eruption.

"We’re forecasting a contraction in the second quarter and also in the third quarter. That’s why we’re talking about a U-shaped recovery. But we’re expecting a strong bounce back in the fourth quarter," Diokno said.

• First since 1998: Philippines GDP shrinks due to COVID-19 pandemic

Diokno said it was possible second quarter figures "won’t sink too much" given the low base from the previous year. The Philippines grew 5.4 percent in the second quarter of 2019 -- the lowest in 4 years.

The Development Budget Coordination Committee forecasts negative 1 percent to zero growth this year, he said.

The BSP said the 125-basis-point cumulative cut in the policy rate this year was "appropriate to cushion the country’s growth momentum and boost market confidence amid stronger headwinds."

The 200 basis point cut in banks' reserve requirement ratio in April, as well as alternative modes of compliance, will help encourage banks to lend to micro, small and medium enterprises, he said.

“We expect these monetary policy measures to have a cascading impact on market interest rates, which would eventually translate to lower borrowing costs for the government as well as for firms and people,” said Governor Diokno.