THE Philippine economy may have posted a single-digit contraction in the third quarter of the year on the back of the easing of quarantine restrictions, according to a local think tank.
In its latest Market Call report, First Metro Investment Corp. (FMIC)-University of Asia and the Pacific (UA&P) Capital Markets Research said the July to September period likely saw the economy contract no more than 5 percent.
The improved economic performance in the third quarter, the think tank said, has been seen in the muted inflation; increased government spending; and the growth of construction, manufacturing and mining.
“A sprinkling of positive news and less negative economic data suggests that the economy is well past the bottom and is slowly gathering momentum,” FMIC-UA&P Capital Markets Research said. “All these make us believe that the Q3 [third quarter] GDP fall will prove much milder than the deep dive in Q2 [second quarter].”
The think tank said the easing of restrictions on firms and public transportation in mid-September could lead to better growth until the fourth quarter.
The passage of the Bayanihan 2 Act, which allocates an additional P165.5 billion to finance several government programs, would lead the national government to post double-digit growth, it added.
FMIC-UA&P Capital Markets Research said the additional budget will finance “cash-for-work program, agriculture support, assistance to industries” and the procurement of vaccines which will ensure the country’s recovery from the pandemic.
The think tank also expects inflation to stay muted at around 2.4 percent. Inflation may be below 2 percent at the start of 2021.
Layoffs imperil remittances
Meanwhile, the think tank said remittances could maintain its growth in the past two months, but this is being threatened by layoffs abroad.
The peso appreciation at a year-on-year growth of 6.3 percent brought down the peso equivalent of remittances by 10.1 percent in August.
“We previously expected the upcoming Christmas holidays to maintain the growth in remittances over the last two months [but] job market challenges and layoffs abroad continue to threaten this positivity,” FMIC-UA&P Capital Markets Research said.
“Money [M2 or M3] growth has remained underwhelming as it has kept below 15 percent year-on-year growth. Banks appear quite risk-averse and eager to boost their cash hoard to face harsh financial realities ahead,” it added.
Earlier, the National Economic and Development Authority (Neda) said it remains optimistic about the country’s economic prospects even if the general community quarantine (GCQ) remains imposed in Metro Manila until the end of the year.
Metro Manila or the National Capital Region (NCR) accounts for a third of the country’s economic performance. Together with Calabarzon and Central Luzon, these three regions account for 60 percent of the country’s GDP.
Acting Socioeconomic Planning Secretary Karl Kendrick T. Chua told the BusinessMirror that GDP, particularly in the last quarter of the year, will depend on third-quarter performance and the availability of public transport, among others.
Chua said the economy’s performance in the October to December period will also be influenced by the third quarter. The data, he said, will be released in November.
Nonetheless, based on the level of quarantine imposed in the July to September period, Chua sees third-quarter economic performance to be an improvement over the second quarter.
In the first semester of 2020, the country’s GDP contracted 9 percent on the back of a 0.7-percent and 16.5-percent decline in the first and second quarters, respectively.
Image credits: Roy Domingo, NEDA