Economic team sticks to growth target

July 12, 2020

Economic contraction in the second quarter of the year is expected to be deeper than the first three months performance, but economic managers are keeping their two percent to 3.4 percent contraction projection for this year.

“It’s logical that the second quarter will be worse than the first quarter because that’s the peak of the lockdown. But still, we stick with the national government’s position that full year will be a contraction of 2-3.4 percent,” Bangko Sentral Gov. Benjamin Diokno said.

In the first quarter this year, gross domestic product posted its first negative print of 0.2 percent, the first since the fourth quarter of 1998 due to the impact of the coronavirus disease pandemic.

Economic managers have revised their growth target for this year from the original 6.5 to 7.5 percent earlier.

However, they remain confident in recovery starting in the third quarter of the year that would lift domestic growth next year to around eight percent to nine percent, which is expected to get a major lift through the government’s infrastructure program.

Economic managers said the budget for infrastructure projects was not touched when the government pooled funds for its Covid-19 response since projects under the Build, Build, Build program are expected to be among the economy’s major growth drivers when it starts to recover.

During the same briefing, acting Socioeconomic Planning Sec. Karl Kendrick Chua said economic managers are guided by two principles on how they set the macroeconomic targets, namely being objective on latest economic data and pro-active on how economic trajectory takes place.

Chua said they continue to work with legislators on the proposed reforms to improve the country’s fiscal situation, as he also urged the public to follow minimum health standards to help address the current health situation in the country and ensure economic recovery in the next months.

Earlier, the Asian Development Bank said economic activity in Southeast Asia is expected to contract by 2.7 percent this year before growing by 5.2 percent in 2021, with the Philippine economy forecast to shrink 3.8 percent.

Contractions are forecast in key economies as containment measures affect domestic consumption and investment, including Indonesia (-1.0 percent), the Philippines (-3.8 percent), and Thailand (-6.5 percent). Vietnam is forecast to grow 4.1 percent in 2020, according to a new set of forecasts from the Asian Development Bank.

While that is 0.7 percentage points lower than ADB’s April estimates, it is the fastest growth expected in Southeast Asia.

Earlier, the World Bank said the Philippine economy, hammered by natural disasters and the coronavirus disease 2019, is projected to contract by 1.9 percent this year.

But there are good chances that the country can bounce back in the next two years, according to the World Bank’s latest Philippines Economic Update.  

The eruption of Taal Volcano and most importantly, the global outbreak of Covid-19, including the strict containment measures against the pandemic, have led to severe disruptions in manufacturing, agriculture, tourism, construction and trade, according to the report, titled Braving the New Normal. 

Affecting millions of households nationwide as well as overseas Filipinos, the cumulative impact of these events on the economy has been broad-based, steep and deep, halting investment activity and leading to the lowest consumption growth in three decades. 

Private consumption growth fell to 0.2 percent in the first quarter of 2020 from 6.2 percent last year. The hotel and restaurant industry suffered the most, contracting by 15.4 percent. 

The economic contraction would likely cause an increase in poverty.

The WB noted that containment measures have cut off income streams from seasonal wage earners and those engaged in entrepreneurial activities in non-agricultural activities and low-end service jobs, which were the drivers of poverty reduction in recent years.