Philippine economy shrinks more than expected on weak demand

[MANILA] The Philippine economy contracted more than economists expected in the fourth quarter, capping its worst year on record, as private consumption remained anemic even as more businesses reopened from lockdowns.

Gross domestic product shrank 8.3 per cent in the three months through December from a year earlier, the statistics agency said Thursday. That compared with the median estimate for a 7.9 per cent decline in a Bloomberg survey and the third quarter's revised 11.4 per cent contraction.

For all of 2020, GDP plunged 9.5 per cent, matching economists' median forecast and the largest drop in government data going back to 1946.

Still, the quarterly figures indicate the decline has moderated from the early months of the outbreak.

"Without doubt, the pandemic and its adverse economic impact are testing the economy," Economic Planning Secretary Karl Chua said. However, the government sees "green shoots of recovery" with the gradual easing of restrictions on movement.

Stocks recouped early losses and were up 0.8 per cent as of 10.33am in Manila. The peso was little changed.

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The Philippines was among the world's fastest-growing economies over the past decade, but is now struggling to escape recession, with analysts expecting growth to turn positive only in the second quarter.

The World Bank forecasts Philippine GDP to expand 5.9 per cent this year, below pre-pandemic levels, as restrictions on movement remain amid Southeast Asia's second-worst virus outbreak.

President Rodrigo Duterte plans to spend a record 4.7 trillion pesos (S$130.50 billion) this year, hoping to drive GDP growth as high as 7.5 per cent.

VACCINES KEY

"Despite the setback, we don't expect stimulus efforts from either monetary or fiscal authorities," said Nicholas Mapa, a senior economist at ING Bank in Manila.

The central bank "is likely out of ammunition after front loading rate cuts, while the fiscal side of the fence appears content with its current modest increase in budget in 2021."

The nation's vaccination program will be key to any economic recovery. The government aims to vaccinate 70 per cent of the 100 million population by the end of 2022 to achieve herd immunity, but so far has signed deals for only about one-third of the doses needed.

The smaller fourth-quarter contraction was driven by exports and eased movement restrictions, said Alex Holmes, Asia economist at Capital Economics, "but both of these boosts have mostly run their course," at least in the near term.

"What's more, the economic scars from the downturn, including business insolvencies, weaker household balance sheets and high unemployment, will weigh heavily on demand for many months to come," Mr Holmes wrote in a research note. "We estimate that by the end of 2021 the economy will still be 10 per cent smaller than if the pandemic had not happened."

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