Philippines: GDP drops at softer but still pronounced pace in Q4 2020
January 28, 2021
The economy shrank 8.3% on an annual basis in the fourth quarter of 2020, following the 11.4% contraction tallied in Q3. Despite the moderation, the drop was still pronounced, as the continuous extension of restrictions throughout Q4 weighed on activity. For the year as a whole, GDP plunged at a record-breaking pace of 9.5% (2019: +6.0%). Meanwhile, on a seasonally-adjusted quarter-on-quarter basis, economic growth slowed markedly to 5.6% in Q4 from the previous quarter's 8.0% expansion.
Private consumption dropped at a softer pace of 7.2% year-on-year in the fourth quarter, following the 9.2% contraction logged in Q3. Similarly, fixed investment declined at a weaker yet still marked rate of 28.6% in Q4 (Q3: -37.1% yoy). Meanwhile, government spending growth moderated to 4.4% in Q4 (Q3: +5.8% yoy), suggesting that concerns over the rising budget deficit prompted the government to adopt a more cautious stance.
On the external front, exports of goods and services contracted at a milder annual rate of 10.5% in the fourth quarter (Q3: -14.4% yoy). In addition, imports of goods and services declined at a softer pace of 18.8% in Q4 (Q3: -21.5% yoy).
Economic activity is expected to remained muted in the first quarter of the new year, dragged down by the extension of Covid-19-related restrictions to the end of February, as well as waning fiscal support. Nonetheless, GDP is poised to return to growth this year, while the uncertain trajectory of the pandemic and a slower-than-expected vaccine rollout cloud the outlook.
Commenting on the outlook for fiscal and monetary policy, as well as growth prospects, Nicholas Mapa, senior economist at ING, said:
“Despite the 9.5% contraction in the economy, we are not counting on the authorities to offer any form of stimulus to offset the downturn, both on the monetary or fiscal front. […] With only a modest pickup in government outlays expected in 2021 and with the trade balance forecast to remain in deficit, we do not see a stark pickup in economic activity with GDP growth powered mainly by base effects with the economy still lacking substantial momentum to drive growth back to the 6% level.”
However, analysts at Nomura see further policy rate cuts down the line:
“We reiterate our 2021 GDP growth forecast of 6.8%, which implies economic output does not return to pre-Covid levels this year but only in Q2 2022. With the weak economic recovery, a rising risk of delays in reaching the vaccine pivot point, and the absence of more sizeable fiscal support, we continue to expect Bangko Sentral ng Pilipinas (BSP) to cut its policy rate by 25bp in March and by another 25bp in Q2.”
Author: Alex Petropoulos , Junior Economist