Philippines' GDP contraction narrows to 4.2% in Q1 amid tenuous recovery

LINGERING uncertainties surrounding the Covid-19 pandemic and vaccines roll-out is taking its toll on the Philippine economy, which shrank more than expected in Q1.

The country's gross domestic product (GDP) shrank 4.2 per cent year on year in Q1, representing the fifth straight quarter of drops. It also appears to be the steepest drop among Asian countries, noted UOB economists Julia Goh and Loke Siew Ting in a note on Tuesday.

"Taking into consideration the bigger-than-expected GDP decline in Q1 2021 and reimposition of stringent containment measures between late March and May this year, we slash our 2021 GDP growth forecast to 5.5 per cent (from 7.0 per cent previously)," said UOB.

It added that a wider and more effective vaccination roll-out and expedition in government spending will be key impetus to sustain solid growth revival in H2 amid year-ago low base effects and improving external demand.

Presently, the Philippines is still behind its South-east Asian neighbours - Singapore, Malaysia and Indonesia - in inoculations. According to Pharmaceutical Technology data, the Philippines has just administered 17.0 vaccine doses per 1,000 people as at end-April, compared to Singapore's 392.6 doses, Malaysia's 42.5 doses and Indonesia's 74.8 doses

There is little doubt that the frequent imposition of restrictions on mobility is hurting recovery, said ANZ economists Rini Sen and Sanjay Mathur in a separate report.

"We expect double-digit growth in Q2 due to favourable base effects (but) the outlook continues to be tenuous. Household consumption remains subdued, characterised by high unemployment and limited savings to unwind. Credit growth has been decelerating, declining at 4.5 per cent year on year in March," they said.

On the question of what the Philippines central bank will do, UOB economists said they expect the central bank to stay put for the fourth meeting on Wednesday, as it guards against a second round of inflationary pressures.