MANILA - The Philippines got hit by the second worst quarterly contraction in its economy on record in the third quarter. At 11.5 percent, the third quarter contraction was certainly slower than the second quarter’s 16.9 percent contraction, but it was still worse compared to most private sector expectations, as well as government projections.
The contraction is second worst on record, based on data going back to 1981, behind the second quarter contraction of 16.9 percent. That was just revised lower, from an initial estimate of -16.5 percent growth.
Forecasts from the private sector ranged from -6 percent to -11.2 percent. Nicholas Mapa of ING Bank had one of the closest forecasts to the actual number, at -11.2 percent versus -11.5 percent.
He is preparing for a slow fourth quarter as well.
Mapa says consumer spending won’t perk up, “based on unemployment at 10 percent - we were just hitting an average of 5 percent before. The consumer confidence survey is also deep in the red. Shell-shocked! We are not expecting a bounce back. It’s already November, we should be seeing a Christmas rush. But we’re not.”
Mapa is also expecting lower corporate spending compared to previous years.
“When revenues are falling, the first impulse is to slow down spending. But see, the government is the only economic agent with the ability to come up with big spending. Can't expect consumers to save the day now. We need the government to step up, plug gaps.”
Third quarter data from the PSA show government spending is still growing. In fact, it was the only portion that grew on the demand side. But it only grew 5.8%, its slowest since the first quarter of 2017. It was also much slower compared to the year-on-year growth in the second quarter, which hit 21.8 percent.
Mapa says the government should be spending more. He says “The government has been putting money in capital investments, they should also be jumpstarting demand, like the US’ payment protection program, consumption is key to get back on our feet.”
Acting Socioeconomic Planning Secretary Karl Chua however dispels suggestions the government is spending enough.
He says over P500-B was allocated in support of vulnerable sectors, over P50-B was given to the health sector for the fight against COVID-19, P1.3-T was infused into the financial system through actions by the Philippine Central Bank, and another near P700-B has been prepared through government’s latest actions, including Bayanihan 2.
Chua says “the total is by the trillions, so that is a first, so we are not shy in providing both fiscal and monetary support. We are also doing other support such as the passage of CREATE which will lower the income tax immediately for 99 percent of SMEs that employ 60 percent of workers. We are pursuing FIST and GUIDE bills that will help more of the banks help distressed firms facing liquidity and solvency issues. We are also changing our policy to risk management to open up the economy further. We should look at it as a package.”
On the supply or production side, Agriculture was again a bright spot, expanding by 1.2 percent. This however was slower compared to the 1.6% expansion in the second quarter. The farm sector continues to expand in spite of serious challenges, including the African Swine Fever outbreak which forced the culling of an estimated 4 million heads of hogs, based on private sector data (SINAG). The contractions in industry and services were slower compared to the second quarter, and this was again interpreted as a good sign by Chua.
The overall outlook for 2020 however remains bleak, and National Statistician, Undersecretary Dennis Mapa says “average growth in the first 9 months is -10%. I understand the full year forecast is -5.5 percent. At this point that is no longer feasible.”
Mapa would go on to say fourth quarter growth would have to hit over 6 percent to achieve a -5.5 percent average for the full year, which again he says is no longer feasible.
Chua also notes recent storms Quinta and Rolly will also be reflected in the fourth quarter, and damage from Rolly alone in the Bicol Region is estimated in the billions.
That storm damage, alongside the ongoing La Nina weather effect and more income storms, are all expected to make things difficult for the agriculture sector. Chua and Trade Secretary Ramon Lopez alongside Agriculture Secretary William Dar assure the public that food supply remains adequate.
The -11.5 percent GDP growth for the Philippines is the worst amongst ASEAN’s major economies, based on available data as of November 10.
The Philippine economy performed worse than Singapore, Indonesia and Vietnam in the third quarter. Thailand and Malaysia have yet to report.
Chua says the Development Budget Coordination Committee will convene immediately to study the latest numbers and to reassess their assumptions for 2020 and beyond.
Chua says “When the DBCC met in July to propose the projections for the budget, the range was up to I believe 6.6 percent contraction. "
Chua provided more insight as well on employment, and the poor. He says “The impact on unemployment and poverty, will also be part of the reassessment. So far we have reported that unemployment may average around 11 percent. And our poverty may either improve slightly to below 16 percent or deteriorate slightly but temporarily to around, I believe up to 17.5 percent."
Chua however says one thing is clear, there will be no more strict ‘blanket’ lockdowns in response to rising COVID-19 cases. He says “a different strategy that we are undertaking. Unlike in past quarters, where we had to close a significant portion of our economy so we can prepare the health system, we are balancing that very carefully this time and managing the risk. we are capitalizing on the benefits or progress in the health system. notably on our improved testing and contact tracing and treatment strategy, so we can gradually open more of the economy. so that will also have a very positive effect on the 4th quarter GDP.”
He did however say they can use ‘localized’ lockdowns as a tool of last resort in extreme cases where strict health measures fail to curb the spread of the virus.