Philippine economy signals shaky recovery from Covid-19

MANILA • The Philippines' economic contraction moderated in the third quarter by less than forecast, signalling an unsteady recovery from the pandemic even as movement restrictions were relaxed and businesses reopened.

Gross domestic product shrank 11.5 per cent in the three months through September from a year earlier, an improvement from the second quarter's revised 16.9 per cent drop. The median forecast in a Bloomberg survey was for a 9.6 per cent decline.

Compared with the previous quarter, the economy expanded 8 per cent, below the median estimate of 8.9 per cent among seven economists surveyed, yesterday's data showed. The first sequential growth this year shows the economy is on the mend heading into next year, Acting Economic Planning Secretary Karl Chua said.

"The economic team is optimistic that the worst is over for the country," said Mr Chua, adding that officials would reassess their economic projections in the light of the data. "The path is clearer to a stronger bounceback in 2021."

The peso fell 0.2 per cent to 48.25 per US dollar as of 11.08am in Manila. The country's stock benchmark rose over 3 per cent, joining a rally in Asia on vaccine optimism.

The quarter-on-quarter growth comes after two straight periods of contraction, including a revised 14.9 per cent drop in the second quarter, when the economy entered recession amid South-east Asia's second-worst Covid-19 outbreak.

"While growth is going in the right direction, it will take a while until pre-pandemic production is attained," said Ms Eugenia Victorino, head of Asia strategy at Skandinaviska Enskilda Banken AB in Singapore. "The risk is the longer the recovery takes, the more permanent the destruction of incomes becomes. This will cap growth momentum going forward."

Consumer and business sentiment remain weak after a stricter quarantine was reimposed in Manila for two weeks in August. Unemployment rose in the capital region, which accounts for about a third of the economy, even as the nationwide jobless rate eased in July from a record high in April.

No major sector performed strongly in the third quarter, according to Mr Nicholas Mapa, an economist at ING Groep NV.

"More worrisome is the sustained weakness in capital formation, which points to fading potential output and slower growth for quarters to come, no matter how much government pushes to reopen," he said.

The central bank will likely retain its easing measures until long-term economic growth and job targets are reached. So far this year, it has cut its key rate by 175 basis points, eased some lending rules and boosted money supply.

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A version of this article appeared in the print edition of The Straits Times on November 11, 2020, with the headline 'Philippine economy signals shaky recovery from Covid-19'. Print Edition | Subscribe