ECONOMISTS believe the President’s economic team is being overly optimistic if it expects the economy to shrink only by an average 5.5 percent this year, especially with the double-digit contraction in the second quarter.
On Thursday, the Philippine Statistics Authority (PSA) disclosed that the economy contracted 16.5 percent in the second quarter of the year. This is a new historic low for the country.
With this, Acting Secretary Karl Kendrick T. Chua said the inter-agency Development Budget Coordination Committee (DBCC) revised full-year targets to a contraction of 5.5 percent from the initial estimate of a contraction of 2 to 3.4 percent this year.
“It [the target] doesn’t look doable, especially with the lack of control over the pandemic,” former Socioeconomic Planning Secretary Romulo L. Neri. “Karl Chua came out with a good plan [but] they seem to have backed off.”
In order to attain this growth, the National Economic and Development Authority (Neda) estimates that the country needs to post an average contraction of 2.2 percent in the second half of the year. The pandemic caused the country’s first semester growth to contract 9 percent.
Neri said this could be possible if the plan of Chua were followed. He said that the country’s Acting Chief Economist unveiled the plan last May 12.
This was composed of a four-pillar strategy which aimed to devote P1.49 trillion or 7.8 percent of GDP on efforts to arrest the ill effects of the pandemic.
“[Currently there is] no coherent policy to save our people and our economy,” Neri said. “Hopefully, it will improve.”
Quarantine factor
Former University of the Philippines School of Economics Dean Ramon L. Clarete also told BusinessMirror that a -5.5 percent GDP target may not be feasible considering the quarantine.
Clarete said if the same system implemented during the quarantine will continue, the country cannot expect any improvement in economic growth.
“The quarantine is a factor. If it continues then we have also double-digit negative growth. If the same quarantine continues in the fourth [quarter] then we will have double digit contraction of the economy for this Covid-19 year,” Clarete said.
For his part, Ateneo Center for Economic Research and Development (Acerd) Director Alvin P. Ang said the target will only be feasible if the government can organize a common response.
If this response is put in place, he said this will contribute to the expected slower contraction in the third and fourth quarters.
Ang said this takes into consideration the gradual opening of the economy. However, the reimposition of the MECQ would likely not improve third quarter growth.
That target is attainable if they are able to organize a common response,” Ang said. “[This is] considering that the global trade is already improving and the Philippines can be pulled up as seen in June trade data.”
For De La Salle University economist Maria Ella C. Oplas, the target will only be doable if the virus is contained and the government will be able to prime the economy.
Oplas shared Ang’s sentiments that with the MECQ in place, the third quarter will also not be able to post better growth. “For the third quarter, I regret, but I don’t see signs of them improving.”
She said the MECQ in Metro Manila and neighboring cities will affect the country’s growth and supply chain. Oplas said this will also pose challenges in terms of an increase in unemployment.
If there is more spending from the government, it can provide financial assistance not only to the poor but also frontliners. Oplas said this is a good start given that frontliners and their families will also benefit and boost the economy.
Health spend ‘good economics’
Oplas added that additional funds should also be used to hire more health workers. The country’s public health system is already at full capacity and improving it by investing is a way to boost economic growth.
“Covid-19 is the number one enemy right now. We must tackle it face to face,” Oplas said. “Spending on health is good economics at this point in time.”
For Unionbank Chief Economist Ruben Carlo O. Asuncion, the third and fourth quarters will likely still be in negative growth territory. He said they are currently recasting their estimates in light of the second quarter data.
However, Asuncion said he appreciated the economic team’s admission that there was a chance to get back to normal—provided there is a vaccine.
He expressed hope the stimulus would be larger to accommodate additional spending for the economy.
However, Asuncion said P180 billion is “better than having nothing at all” at this point. In order to maximize the amount, government should spend it to create jobs and help micro, small, and medium enterprises (MSMEs).
“I think supporting the MSMEs is key and ‘ayuda’ for the vulnerable people are very important. Healthcare support is also pivotal because of the need to have the virus contained and controlled appropriately,” Asuncion said.
Action for Economic Reforms (AER) Coordinator Filomeno Sta. Ana III told BusinessMirror that it was difficult to make forecasts at this point given the uncertainty of a pandemic.
However, Sta. Ana said as long as the transmission of the virus is increasing and the healthcare system is overwhelmed, the economy would likely suffer.
There is no guarantee, he added, that a stimulus will boost the economy. However, he said the Bayanihan 2 bill filed in Congress was a better bill than the proposed ARISE bill.
“If the crisis gets prolonged, government would have to borrow more. Bayanihan is still better than ARISE,” he said, noting that the latter “has too many redundant or wasteful items.”
Historic low
The pandemic has brought the Philippine economy to its knees as the lockdowns meant to control the spread of the deadly disease caused GDP to contract to a historic low.
The largest contraction posted by the economy prior to the second quarter this year was toward the end of the Marcos administration in the third quarter of 1984 at 10.7 percent.
“This is the lowest in the 1981 series. The GDP quarterly series started in Q1 [first quarter] 1981. So we can say this is the lowest in the entire series,” National Statistician Claire Dennis S. Mapa told BusinessMirror via SMS.
PSA said in terms of the major industries, agriculture grew 1.6 percent in the second quarter, higher than the 0.7 percent posted in the same period last year.
However, Industry and Services both became casualties of the pandemic as these sectors contracted 22.9 percent and 15.8 percent, respectively.
Mapa said Industry’s contraction was the worst in the current 2018 based series. The last time industry posted a similar double-digit contraction was in the first quarter of 1985.
Contraction in Services, Mapa said, was also the worst in the data series. Services last posted a double-digit contraction in the third quarter of 1984 at 10.8 percent.
Expenditures
On the expenditure side, major items that declined were: Household Final Consumption Expenditure (HFCE), 15.5 percent; Gross Capital Formation (GCF), 53.5 percent; Exports, 37 percent; and Imports, 40 percent.
On the other hand, Government Final Consumption Expenditure (GFCE) posted positive growth of 22.1 percent.
Mapa said the contraction in the HFCE was the worst in the series and the last time it contracted was in the third quarter of 1985.
For GCF, Mapa said this was also the worst since the first quarter of 1985 when contraction reached 56.6 percent.
The contraction in exports was also the worst since 1981 when the PSA started released quarterly GDP data, Mapa said.
The PSA data also showed Net Primary Income (NPI) from the Rest of the World and Gross National Income (GNI) both declined by 22 percent and 17 percent, respectively.
In terms of revision, Mapa said the PSA would likely revise the second quarter data given that only 80 percent of the data needed was included in the computation.
He said it was rare for PSA to obtain 100 percent in data collection, especially in the preliminary estimates of the GDP data.
Image credits: Roy Domingo
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