DESPITE projecting that the country’s full-year GDP growth to contract by 2 to 3.4 percent this year, the government said it is “most likely” that the economy would recover in the second half of the year after a contraction in the second quarter.
Acting Socioeconomic Planning Secretary Karl Kendrick T. Chua said on Wednesday they are still pinning their hopes on a V-shaped recovery.
“V-shape most likely,” he said in a message to the BusinessMirror, adding that they are still “hopeful” that the country would have a positive growth for the third and fourth quarters.
Asked on the Development Budget Coordination Committee’s (DBCC) quarterly GDP growth estimates that will lead to the full-year contraction of 2 to 3.4 percent this year, Chua said: “We do not project quarterly.”
The DBCC’s projection of GDP contracting by 2 to 3.4 percent this year could be the country’s worst GDP growth rate since 1985 when the economy contracted by 6.9 percent.
In 1985, the economy contracted by 6.9 percent due in part to the debt crisis the country experienced that year. In December 1985, former President Ferdinand E. Marcos called for a snap election.
The economy contracted by 0.2 percent in the first quarter of 2020, its steepest decline in over two decades.
However, Rizal Commercial Banking Corporation (RCBC) Chief Economist Michael L. Ricafort expects a U-shaped recovery as he sees negative GDP growth for the second and third quarters before the country’s economy posts a positive growth in the fourth quarter.
Ricafort sees the economy contracting by 5 percent for the second quarter and the GDP growth to remain in the negative territory in the third quarter at -1 to -3 percent.
For the fourth quarter, Ricafort said the economy would start recovering to 1 to 3 percent growth on the back of stimulus measures as well as Christmas season spending.
With this, he is estimating that the country’s full-year GDP this year to contract by 2 to 4 percent, which he said would still be “better” compared to other Asian countries that are projected to contract by 5 to 10 percent and other developed countries around the world, with estimated 10 to 15 percent GDP contraction for some big European countries.
For 2021, Ricafort said he sees a strong GDP growth for 2021 at 7 to 8 percent “largely due to low base/denominator effects.”
“The economy could recover gradually in about 1 to 2 years [U-shaped recovery], largely depending and as a function of how long the lockdowns would last and how the Covid-19 pandemic would be controlled/contained, as any sustained economic recovery/rebound would also partly depend on any successful development of a cure/vaccine,” he said in a message to the BusinessMirror.
For UnionBank Chief Economist Ruben Carlo Asuncion, the government’s GDP estimates of up to -3.4 percent contraction this year is also in line with their projection under the worst scenario.
Under this scenario, Asuncion said he expects more of a check-mark type of recovery as there could be more of a “sluggish recovery” without the discovery of the vaccine before achieving positive growth back in 2021.
“For this worst-case scenario, there is a slight uptick in H2 (second half) [of] 2020. What’s really critical, as mentioned, is the discovery, availability and administration of a vaccine for growth to start inching into pre-Covid-19 territory,” he told the BusinessMirror.
For 2021, he is projecting a 1.7-percent GDP growth.
Deficit spending
The DBCC also said it projects deficit spending this year to increase to P1.56 trillion or 8.1 percent of GDP, 2.8 percentage points higher than the estimate of 5.3 percent of GDP announced in March.
The DBCC attributed the increased deficit spending to the revised revenue and disbursement program.
Expected revenue collection for this year has been revised downward to P2.61 trillion or 13.6 percent, posting a P560.5-billion drop or 17.7 percent compared with the P3.17-trillion program approved by the DBCC on March 27, 2020.
On the other hand, disbursements for this year are estimated at P4.18 trillion (equivalent to 21.7 percent of GDP), slightly exceeding the program approved in March by P12 billion or 0.3 percent of GDP. The disbursement program was revised due to the releases for Covid-19 initiatives charged to savings.
Sought for comment, Asuncion said he expected the deficit to be a little lower at around 7 percent of GDP, although he said the government’s target is still “doable and manageable.”
“Doing too much to save jobs and safeguarding the general welfare of the Filipino people, most especially health, is way better than doing too little,” he said.
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