The Philippine economy plunged by much more than expected in the second quarter, falling into recession for the first time in 29 years, as economic activity was hammered by one of the world’s longest and strictest coronavirus lockdowns.
The Southeast Asian nation’s economy shrank by 16.5 percent in April-June from the same period last year – the biggest slump in the government’s quarterly GDP data dating back to 1981, the Philippine Statistics Authority said on Thursday.
Gross domestic product (GDP) fell by much more than the 9 percent contraction forecast in a Reuters poll and was worse than a revised slump of 0.7 percent in the first quarter. Seasonally adjusted GDP fell 15.2 percent in the second quarter from the first three months of the year.
The economic hit from the pandemic could worsen with the government reimposing tighter quarantine controls in the capital Manila and nearby provinces for two weeks from Tuesday amid a resurgence in coronavirus cases.
Acting Economic Planning Secretary Karl Chua said the Philippine economy is now expected to contract by 5.5 percent this year, deeper than initially thought.
“The Philippine economy crash-landed into recession with the [second quarter] GDP meltdown showcasing the destructive impact of lockdowns on the consumption-dependent economy,” said ING senior economist Nicholas Antonio Mapa.
“With record-high unemployment expected to climb in the coming months, we do not expect a quick turnaround in consumption behaviour, all the more with COVID-19 cases still on the rise.”
The Philippines main share index showed little reaction to the data.
Some businesses have been ordered shut and movement restricted again in Manila and nearby provinces, which accounts for a quarter of the country’s population and most of its economic activity.
Research firm Capital Economics said the 16.5 percent second-quarter shrinkage is likely to be one of the biggest falls in the region.
“A failure to contain the virus, continued restrictions to movement and inadequate policy support mean the Philippines is also likely to experience one of the region’s slowest recoveries,” Capital Economics’ Asia economist Alex Holmes said in a research note sent to Al Jazeera.
The Philippines recorded 115,980 confirmed infections as of Wednesday, just behind Indonesia’s 116,871 cases, which is the highest in East Asia.
Record-high unemployment and a steep decline in money sent home by Filipinos abroad have weighed on private consumption, which drives roughly two-thirds of GDP. Exports suffered double-digit annual drops from March to June as the lockdown restricted production and snarled supply chains.
With inflation expected to remain subdued throughout the year, the central bank has room for further policy easing if needed, analysts said.
It has slashed the benchmark interest rate by a total of 1.75 percentage points this year to a record low of 2.25 percent.
UK-based lender HSBC said it expects the central bank to make another quarter-percentage-point cut in the fourth quarter, taking its key rate down to 2 percent.
‘All hands on deck’
But economists said the government needs to augment the central bank’s monetary stimulus with large doses of fiscal measures.
“Today’s GDP print points to the need for an ‘all hands on deck’ approach to boosting the economy,” HSBC economist Noelan Arbis said in a research note sent to Al Jazeera.
“The lack of a significant fiscal stimulus is particularly concerning for the country, which now appears to be the region’s hardest hit economy due to the pandemic,” Arbis wrote, adding that political gridlock is adding to the country’s economic problems.
Policymakers are deliberating a spending plan and a proposed corporate income tax cut that President Rodrigo Duterte is hoping can support families and businesses hit hard by the pandemic. The amount of support the Senate has proposed – 140 billion pesos ($2.9bn) – is far less than what governments elsewhere in Southeast Asia are providing.