MANILA – The Philippines is starting to show the first green shoots of economic recovery after one of the world’s steepest recessions last year.
In its latest quarterly report, the Philippine Statistics Authority (PSA) announced this week that gross domestic product (GDP) grew by as much as 11.8% in the second quarter of this year, the fastest quarterly growth in more than three decades.
The last time the Southeast Asian country posted a similar growth rate was in the fourth quarter of 1988, when the Philippines posted an 11.99%. growth rate following years of deep recession amid the collapse of the Ferdinand Marcos dictatorship.
The incumbent Rodrigo Duterte administration was quick to hail the headline-grabbing numbers as a sign of “robust performance”, but leading experts noted the statistical spurt derives from an extremely low “base effect” following five consecutive quarterly contractions.
With the Philippine GDP nosediving by 16.9% in the second quarter last year, the country’s actual quarter-on-quarter growth rate stood at -1.3%, underscoring the Southeast Asian country’s regional “laggard” status.
With the re-introduction of lockdowns across major cities this month estimated to cost the economy US$2.98 billion per week, it’s unlikely that the Duterte administration will meet its target of 6-7% growth this year – the rate economists say is necessary to achieve full economic recovery by the middle of 2022.
Amid a new Delta variant-driven surge in Covid-19 infections, with daily confirmed cases reaching 11,021 over the weekend, the Philippine Department of Health has warned of the potential extension of nationwide lockdowns, especially in hotspots such as Metro-Manila.
With less than 10% of the population fully vaccinated, relaxing social distancing restrictions to promote economic recovery will be challenging for months to come.
According to the latest government data, the manufacturing (20.8%) and services (9.6%) sectors have shown the strongest signs of recovery, while the agriculture sector, which is crucial to rural poverty alleviation, contracted by 0.1%.
Thanks to a temporary relaxation of social distancing measures earlier this year, the highest growth rates have been seen in the accommodation and food services followed by construction.
The buoyant growth figure perked up Duterte’s economic managers, who oversaw a steep 9.6% contraction in 2020 and a further 4.2% contraction in the first quarter of the year.
Socioeconomic Planning Secretary Karl Chua sounded particularly upbeat, hailing the latest numbers as a reflection of sound policy and sustained recovery.
“The robust performance is driven by more than just base effects. It is the result of a better balance between addressing Covid-19 and the need to restore jobs and incomes of the people,” claimed the Philippine economy chief.
“Between the first and second quarter, from GCQ (general community quarantine) or MGCQ (modified GCQ), we had to tighten a bit and that explains the slight reduction in the seasonally adjusted quarter-on-quarter,” he added, praising the government’s policy adjustments for the latest numbers.
“Had we not managed the risk better and allowed most sectors to operate and implement and enforce the health protocol, that seasonally adjusted quarter-on-quarter would have been worse,” claimed Duterte’s economic manager, adding the economic situation would have been worse without the government’s dynamic policy-making.
Independent observers and analysts, however, are less sanguine with many warning that the Philippines is still not out of the woods.
“With firms forced to operate at partial capacity, PMI (purchasing managers’ index) manufacturing activity dropped back into contraction for April and May while business sentiment turned less optimistic over growth prospects in 3Q and 2022,” said ING Bank Manila senior economist Nicholas Mapa, who emphasized the negative economic impact of the previous round of lockdowns in response to earlier waves of Covid-19 surges.
The economist projected that the Philippines would need to grow at 8% and above in the next two quarters in order to meet the lower-end of its growth target of 6-7% this year.
“Compared to peak, we are still 12% off while our neighbors, except Thailand, are likely to exceed 100% by end-2021. Much more work has to be done,” Bank of the Philippine Islands chief economist Jun Neri said over Twitter while warning against complacency and emphasizing that “a lot of work” is still needed before the country catches up with its regional peers.
With the new Delta variant wreaking havoc across the region, the Philippines has imposed precautionary lockdowns across major cities. Metro Manila, the country’s economic hub, was already placed under the strictest enhanced community quarantine (ECQ) from March 29 to April 11 amid a second wave of infections. Fearful of a new spike, the government placed the country’s capital under a two-week ECQ from August 6 until August 20, 2021.
“While it is a painful decision, this is for the good of all,” presidential spokesman Harry Roque said in a televised address ahead of the decision. The latest lockdown announcement quickly triggered a stock market fall, with the Philippines’ index (PSI) declining by 3.5%.
Last week saw two consecutive days where daily infection rates breached 10,000, bringing the nationwide tally to 1,649,341. That could be gross underreporting in sight of the country’s high positivity rate (share of people who tested positive) reaching 19.1% based on 56,636 tests reported on August 5.
That’s way beyond the 3-5% threshold set by the World Health Organization and top experts.
In Metro-Manila, hospital occupancy rates are currently at 49%, while the rate for intensive care beds is around 58%. Despite the introduction of weeks-long lockdowns, the DOH has warned that daily confirmed cases may continue to rise in major cities, raising the prospect of extended lockdowns until the end of this month.
Economic Planning Secretary Chua estimated that a fortnight-long lockdown would slice off 210 billion pesos ($4.18 billion) from the country’s GDP, eliminating as many as 444,000 jobs and thrusting as many as 177,000 below the poverty line.
Independent legislators and economists have cautioned of even steeper economic costs, especially if lockdowns are extended in geographic scope and duration.
Congresswoman Stella Quimbo, a renowned economist and former academic, has estimated that a single day of lockdown in Metro-Manila would cost the economy 18 billion pesos ($360 million) a day, much higher than the 12.9 billion a day ($260 million) loss registered during the previous lockdown in the first quarter of this year.
Representative Joey Salceda, a renowned economist and the Philippine Congress’ tax czar, has warned of 405.3 billion pesos ($8 billion) worth of lost output attributable to the latest round of lockdowns, a figure which would rise if surrounding regions in the industrialized northern island of Luzon are also placed under similar Covid-19 restrictions.