MANILA — A deeper contraction was expected for the Philippine economy in the second quarter due to the enhanced community quarantine (ECQ) in Luzon from middle of March to middle of May but a recovery is seen this quarter.
In a virtual briefing on Thursday, Asian Development Bank (ADB) Country Director for the Philippines Kelly Bird declined to give specific figures but said economic contraction in the second quarter likely was “fairly deep” because 70 percent of the economy was on lockdown.
He, however, forecasts a “soft rebound” from July to September although the full-year forecast remains to be a contraction of between 2.3 to 5.3 percent.
In the first three months of the year, domestic output, as measured by gross domestic product (GDP), slipped by 0.2 percent, the first negative print since the last quarter of 1998.
Aside from the government’s infrastructure program and revitalization of economic activities as movement restrictions are continuously being eased, Bird said additional boost for domestic output for this year include the restoration of both consumer confidence to lift consumer spending and investors’ confidence.
“We do expect that as the economy is opening up and workers are returning to their offices, we expect a rebound in consumer spending,” he said but added this will depend on how consumers perceive the recovery will be along with the issue of job security.
Another factor is the government’s fiscal response for the next six to 12 months, he said. Bird said a good news on this front is the purchasing manager’s index (PMI) as of June which showed some stabilization which, he said, indicates that confidence on the economy continues to return.
On the international front, he said exports have also recovered globally as more economies continue to open up.
“So it’s really about consumer confidence being restored, it’s about fiscal stimulus, and it’s about international trade on the export sector. These will be the three factors that will help lead the economic recovery over the next six to eight months,” he said.
Meanwhile, ADB forecasts a 6.5-percent growth for the Philippine economy in 2021, to be driven by the infrastructure program and availability of adequate fiscal space.
Bird said implementation of the priority “Build, Build, Build” infrastructure program “puts the Philippines in a very good position” to support its recovery program.
“In that sense, the Philippines is well-positioned in its rebuilding and recovery phase,” he said.
Bird further said economic managers’ plan to increase government borrowings to address needs for Covid-19 response is not expected to negatively impact the economy because the proportion of debt to domestic output has gone down to below 40 percent.
He said the additional borrowings will increase the debt-to-GDP ratio to about 50 percent, which is the average for countries with the same credit rating as the Philippines.(PNA)