Former NEDA chief sees slower contraction in H2

by Czeriza Valencia (The Philippine Star), 16 Aug 2020

MANILA, Philippines — Slower declines in economic output can be expected in the second and third quarters of the year leading to a full-year contraction of eight percent, according to a former head of the National Economic and Development Authority.

During a recent webinar, former socioeconomic planning secretary Cielito Habito said that coming from a record decline of 16.5 percent in the second quarter, third quarter contraction can be expected to slow down to 11.8 percent and ease further to 2.8 percent in the fourth quarter.

Recovery, however, will not be easy as the decline will most likely continue next year, averaging 5.1 percent for 2021.

“A V-shaped recovery will be impossible,” he said, noting that the shape of recovery of the domestic economy will be more like an extended U or even an L.

The agriculture sector can be expected to continue to defy the downturn for the remainder of the year, growing by 1.5 percent in the third quarter and by 1.8 percent in the fourth quarter to register a full-year growth of 1.2 percent, Habito said.

In contrast, sharp contractions can be expected in the service and industry sectors until next year.

With negative growth in key employment generating sectors, unemployment is expected to remain high at 10 percent this year.

In the near term, he said recovery is challenged by a slow pickup in consumption and tourism. Poor mobility as a result of the slow normalization of public transport could also affect the rebound in construction as workers find it difficult to report to work.

“In construction, one might hope it can have a quick rebound. But the problem that has been besetting it is that the workers for construction projects don’t have something to ride in. Transportation is limited,” Habito said.

Recovery in manufacturing will also be slow because of the continued weakness of the global economy.

Moving forward, Habito said making agriculture a growth engine of the economy would be crucial to recovery, food security and creating a more inclusive economy.

He noted that the agriculture sector was the only industry to have defied the downturn resulting from the peak of the lockdowns in the second quarter.

Specifically, palay and corn production grew by 7.2 percent and 15.6 percent in the second quarter, reversing the negative growth in the same period last year.

“This was rather impressive. This happened at a time when the rice tariffication law was accused of killing the industry. But what this suggests to me was the rice production sector has somewhat adjusted to the increased competition regime,” he said.

He said that year-on-year growth was also seen in sugarcane, rubber and agriculture services during the second quarter.

“We must really look into this sector as the economy’s ultimate backbone,” Habito said.