BSP sees deeper economic contraction

by Lawrence Agcaoili (The Philippine Star), 6 Oct 2020

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is now expecting a deeper gross domestic product (GDP) contraction of seven to nine percent this year as the economy stalled due to containment measures to slow the spread of COVID-19.

In a virtual conference, BSP Governor Benjamin Diokno told members of the Financial Executives of the Philippines (FINEX) that the COVID-19 pandemic has hit the Philippines hard, with the GDP contracting by nine percent in the first half.

The Philippines slipped into recession with the GDP contracting by a record 16.5 percent in the second quarter as the entire Luzon was placed under enhanced community quarantine in mid-March.

The economy partially restarted as the National Capital Region (NCR) shifted to general community quarantine in June, but Metro Manila and nearby provinces reverted to modified enhanced community quarantine from Aug. 4 to 18 as COVID-19 cases more than doubled to 200,000 from 100,000.

“Our current situation is best explained by saying that we are at a turning point from the deep zone brought about by the COVID-19 crisis. The turning of the wheel, of course, is a gradual process as we are not out of the woods yet,” Diokno said.

Diokno’s latest GDP forecast is deeper than the revised GDP contraction of 4.4 to 6.6 percent set by economic managers through the Development Budget Coordination Committee (DBCC) for this year.

For 2021 and 2022, Diokno sees a strong rebound with a GDP growth of 6.5 to 7.5 percent.

Diokno said the recovery process is expected to continue as more industries re-open following the relaxation of the quarantine measures.

“Six months into the pandemic, we are learning how to live with the virus. That is, we are learning how to strike the delicate balance between saving lives and protecting livelihoods and businesses,” Diokno said.

According to the BSP chief, the sharp contraction in the first half is not in any way a reflection of the country’s fundamentals which remain strong.

Diokno said there are early signs of recovery in terms of the rebound in remittances from overseas Filipino workers foreign direct investment inflows, all-time high gross international reserves slower decline in exports and imports, among others.

He also said the value of production for the manufacturing sector improved from March to July, while the manufacturing purchasing managers’ index recovered to 50.2 in September after slumping to 27.5 in April.

Diokno said the BSP’s crisis response toolkit also includes a long list of time-bound regulatory relief measures meant to help banks withstand the crisis.

“We did all these so that they, in turn, can help vulnerable sectors cope with the crisis as well. As the economy recovers, we intend to further strengthen our existing surveillance systems to gain a sharper and more nuanced view of developments in the economy,” he said.