Philippines: Economy continues to contract sharply in Q3
November 10, 2020
GDP contracted 11.5% year-on-year in the third quarter, slightly milder than the 16.9% contraction tallied in the second quarter but still the second sharpest decline on record, as partial lockdown restrictions, elevated uncertainty and a slowdown in fiscal support weighed on activity. On a seasonally-adjusted quarter-on-quarter basis, GDP expanded 8.0% in Q3, a fairly mild rebound given it followed the previous period's 14.9% contraction.
Household spending slid at a softer pace of 9.3% year-on-year in Q3, following the 15.3% contraction in Q2, hit by elevated unemployment and restrictions. Meanwhile, fixed investment declined at a quicker rate of 37.1% in Q3, following the 36.5% decrease recorded in the previous quarter. Public consumption growth slowed to 5.8% (Q2: +21.8% yoy), as the government adopted a more cautious stance amid concerns over the fiscal deficit.
Exports of goods and services fell 14.7% on an annual basis in the third quarter, which was above the second quarter's 35.8% contraction. In addition, imports of goods and services dropped at a more moderate rate of 21.7% in Q3 (Q2: -37.9% yoy): However, the decline in imports was still marked, indicative of depressed domestic demand.
The economy will likely continue to contract sharply year-on-year in the fourth quarter, amid muted fiscal support and lingering coronavirus restrictions, even though they are generally less stringent than earlier in the year. Turning to next year, growth should return, although much will depend on the evolution of Covid-19.
Nicholas Mapa, senior economist at ING, is downbeat about prospects:
“Household consumption, which accounts for the bulk of economic activity, will be muted in the months ahead. The labor market is challenging and bank lending has slowed to single digit growth, signaling a parallel slowdown in investment momentum. […] The persistent threat of the virus will likely sap consumption appetite and keep investment outlays at bay.”
Author: Oliver Reynolds, Economist