Philippine Economy Suffers In 2020
The Philippine economy has suffered the worst annual contraction in 2020.
According to the data from the Philippine Statistics Authority (PSA), the GDP of the country contracted by 8.3% in the fourth quarter as compared with the 6.7% growth of the same period in 2019. This data, however, was better than that of the second and third quarter in 2020.
For the whole of 2020, GDP went down to 9.5%, the steepest contraction in the history of the Philippines. This was also the first economic contraction for the two decades and since the Asian financial crisis.
“The year 2020 will be remembered as the most difficult year in our lives. The road ahead remains challenging but there is now the light at the end of the tunnel,” Acting Socioeconomic Planning Secretary Karl Kendrick T. Chua said. “The fall in consumption translates into a total income loss of around P1.04 trillion in 2020 or an average of around P2.8 billion per day. On a per-capita basis, annual family income declined by some P23,000 per worker, but this average masks wide differences across sectors and jobs. Some workers were hit much harder, while others lost their jobs completely.”
With more businesses reopening, the economy grew to an adjusted 5.6%. “However, it also shows the limits of economic recovery without any major relaxation of our quarantine policy,” said Chua.
Private consumption, meanwhile, fell by 7.2% in the fourth quarter.
“Restrictions on the demand side, notably on the mobility of children, and hence families, prevented private consumption from making a stronger comeback,” Chua said.
Major sectors such as industry, service, and agriculture declined in 2020.
“Nevertheless, we see green shoots of recovery. Investments had a slower contraction of -29.0% from -41.6% in the previous quarter. Both private and public constructions saw improvements, but inter-province travel restrictions have prevented many workers from going back to work,” Chua said.
Government spending increased to 4.4% in the last three months of 2020 in spite of a high base in 2019, said Chua.
Gross National Income (GNI) also contracted by 12% in the last three months of 2020.
Because of this data, Chua said that a rebound may likely come in mid-2022 with the economy further expanding by 8-10%.
“Further opening the economy in 2021 will require a careful and calibrated approach given risks from new virus strains. However, prolonging the status quo of community quarantine and risk aversion is not an option,” Chua said.
Meanwhile, ING Bank N.V. Manila Branch Senior Economist Nicholas Antonio T. Mapa said, “Despite the 9.5% contraction in the economy, we are not counting on authorities to whip out any form of stimulus to offset the downturn, both on the monetary or fiscal front.”
He added, “With only a modest pickup in government outlays expected in 2021 and with the trade balance forecast to remain in deficit, we do not see a stark pickup in economic activity with GDP growth powered mainly by base effects with the economy still lacking substantial momentum to drive growth back to the 6% level.”
Capital Economics Economist Alex Holmes noted that the economy may likely remain 10% smaller as compared with pre-pandemic levels.
He said, “Vaccination would be a game-changer for the economy, allowing social distancing restrictions to be lifted and the resumption of tourist arrivals. But widespread inoculation doesn’t look likely until at least next year. The Philippines has so far not secured enough vaccines to cover its population and faces many logistical challenges, not least running a vaccination program across its roughly 2,000 inhabited islands.”