ADB: Worst may be over for PH economy

By ANNA LEAH E. GONZALES, Manila Times, 24 Jul 2020

The Asian Development Bank (ADB) expects the country’s gross domestic product to contract by as much as 5.3 percent this year, although it says there are encouraging signs that the worst may be over for the economy.

In a virtual briefing on Thursday, ADB Country Director for the Philippines Kelly Bird cited the “ADB Outlook 2020 Supplement” report it released in mid-June in describing the 3.8-percent decline it forecast then as “the median of our range, which is 2.3 to 5.3 percent.”

He also said economic contraction in the second quarter would “clearly be a deep one” because of the imposition of the enhanced community quarantine (ECQ).

The government put Luzon under intensified lockdown in mid-March to contain the spread of the coronavirus disease 2019 (Covid-19) in the country. The move severely restricted people’s mobility and suspended most economic activities. It ended on May 31.

Metro Manila and other parts of the country have been under general community quarantine or its modified form since June.

The decline “will be very deep, but has bottomed out,” Bird said. “But there will be a gradual improvement quarter-to-quarter, [and] there will be a soft rebound in the third quarter.”

According to him, the country’s unemployment rate, which surged to 17.7 percent in April, likely peaked in June.

“[W]e saw in the Labor Force Survey in April that it is really reflecting the lockdown. [But] now that the economy is reopening, a lot [of people] have gone back to work,” Bird said.

“[The] unemployment [rate] may have reached around 22 percent by June. But we expect that to decline to below 10 percent early next year. Because of [the] slower economic growth, we don’t expect that to return to pre-Covid levels until 2022,” he added.

Despite these figures, Bird believes the worst is likely over for the economy, based on indicators that include automobile sales and recent manufacturing data.

Cars sold last month grew by 225 percent to 15,578 units from 4,788 in May, according to the latest joint report of the Chamber of Automotive Manufacturers of the Philippines Inc. and the Truck Manufacturers Association.

Results of an IHS Markit survey showed early this month that the country’s Purchasing Managers Index climbed to 49.7 percent in June from 40.1 in May on the back of eased quarantines and improved demand.

“We do think it has now bottomed up, and we are in the next phase of repairing the damage that has been done. The recovery…is going to be initially fragile and it will be a U-shaped recovery,” he said.

“We are still projecting a 6.5-percent [growth] for next year, [but] there are [still] uncertainties with projections, particularly on how the virus behaves,” he added.

“If a vaccine is discovered and widely distributed, those factors will influence the country’s performance.”

The rebound in consumer confidence and spending and state fiscal response would play major roles in the country’s recovery, according to the ADB official.

“Crucial to economic recovery will be consumer spending restored and [and the] government fiscal response… [W]e expect that confidence to continue. So that is a good indicator to watch out for in the coming months. That suggests that businesses are starting to feel that the worst is over,” Bird said.

“Another is international trade. We see [that] the contraction in exports has also bottomed out as economies open up. Consumer confidence being restored, fiscal stimulus [and] international trade will enable the economy to recover within six to eight months,” he added.