AFTER Covid-19 erased three-year economic gains, the Philippine is bound to have a “dirty” L-shaped recovery in 2021, an economist said, anticipating an average growth of 4.7 percent.
ING Bank Manila Economist Nicholas Antonio T. Mapa said in an online briefing on Monday that the Philippine economy began this year with a low base after gross domestic product (GDP) contracted by 9.5 percent on average in 2020 as a result of the pandemic-induced lockdown protocols.
With this, Mapa noted that the P4.9-trillion economy prior to the pandemic saw a drop to P3.9 trillion last year, which is the same GDP level in 2016. “We can say in some sort of fashion that Covid-19 wiped out three years’ worth of economic gains,” Mapa said. “We are now operating at that base.”
Considering this, he said that a 3.4-percent decline in GDP is likely in the first quarter. It is expected to recover to 13 percent in second quarter; 5.9 percent in third quarter; and 5 percent in fourth quarter.
The forecast hinges on many factors, including a “not too rosy” job market outlook, he said, which will affect private consumption spending—a major GDP contributor.
While the easing of lockdown measures paved the way for some job creation, Mapa said the country is still behind. “With no income, it is difficult for us to expect a strong bounce back for a good portion of the society,” he explained.
The unemployment rate, to recall, peaked at 17.7 percent in April last year before going down to 8.7 percent in October. Both figures, Mapa noted, are above the 5.5-percent average jobless rate prior to the pandemic.
The downturn in job opportunities, in turn, affected the consumer confidence, Mapa said, noting that the consumer expectations index—as reported by the Bangko Sentral ng Pilipinas—slid to -47.9 percent from pre-pandemic 1.3 percent.
“This [consumer confidence] is actually tied to your job prospects, job security. With that type of job market, you cannot expect to have consumer confidence,” he explained.
Mapa said some consumers may do revenge shopping, but it would not be at the same pace prior to the pandemic.
Capital formation weak
Meanwhile, Mapa also said that capital formation may not likely return soon given that bank lending is currently in decline as businesses are reluctant to invest or expand.
Outstanding loans of universal and commercial banks declined by 0.7 percent in December 2020—the first contraction in 14 years.
“Even if BSP has cut [the policy rates] rather aggressively, borrowing costs have not really followed suit in 2020. The spread is actually quite substantial,” he said. “This has been tied to banks being a little more circumspect in giving out loans for the mere fact that there is a lot of risk out there.”
The overnight reverse repurchase facility is currently at 2 percent after a total cut of 200 basis points last year. In terms of consumer loans, Mapa is also not seeing immediate recovery.
“Given the struggles on the ground with the job market still quite challenging, maybe some bounceback once again [on] base effects will roll in by early next year. But a true return to the double-digit sustained level of expansion in consumer loans may be closer to end-2022 when the job market hopefully stabilizes,” he explained.
Given the economic setback, Mapa said the government sector is anticipated to “step up to the plate” to boost business activities.
While the 2021 budget of P4.506 trillion was 10 percent higher than last year, it may not be enough still.
“Yes, it is the biggest budget in history; however, [it] may not be commensurate to the drop down in GDP,” he said. The ING economist said the economy could further grow to 5.1 percent this year if the lockdown measures are further eased.
Recently, the government announced that cinemas are allowed to open in areas under the general community quarantine. They are required to limit their capacities to only 30 percent and provide ventilation as part of safety protocols.