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Economy in Recession, Dragged by COVID-19 Lockdown

GDP shrinks by 16.5% in second quarter.
by Joel Guinto
Aug 6, 2020
Photo/s: Jerome Lascano
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(UPDATE 2) The economy shrank for the second straight quarter, plunging the Philippines into a recession, as the reimposition of strict quarantines shut some businesses for another 15 days. The numbers were released as Manila moved to recalibrate its COVID-19 strategy to cap fast-rising infections that threaten to overwhelm the health system.

Gross domestic product or GDP shrank by 16.5 percent in the April to June quarter, when the full effect of the highest restrictions or enhanced community quarantine was felt. The lockdown was eased on June 1, to a general community quarantine, the second to the lowest, allowing many businesses to reopen. However, a surge in cases forced the reimposition of a Modified ECQ, the second highest from Aug. 4 to 18 in Metro Manila, Bulacan, Laguna and Cavite.

The second quarter contraction exceeded the median 9.4-percent forecast of economists in a Bloomberg poll. It was the steepest drop since at least 1981, the Philippine Statistics Authority said. The country last entered a recession in the mid-1980s.

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The numbers reflected the state of the economy under quarantine. Restaurants and hotels declined while financial services and communications grew, reflecting the shift to e-commerce and high data demand as people are required to stay at home, National Statistician Claire Dennis Mapa said.

"Partly because of the lockdown, you are seeing a drop in the sectors, particularly the industry group. We are seeing that because of the April to May lockdown," Mapa said in a Zoom call with reporters. It is "too early to tell" the direction of the economy for the rest of the year, he said.

The recession or two successive quarters of GDP contraction was expected. What the government released alongside the data on Thursday was the expected trajectory of the rebound. Economists have predicted the recovery, when plotted as line graph, to take the shape of a V (steep fall and steep rise) or the letter U (fall, followed by a steady rise). It will all depend on how long businesses take to restart and recover.

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A contraction in the GDP indicates slowing economic activity, meaning businesses are slowing down or closing. April jobs data showed that the unemployment rate surged to a record 17.7 percent, padding the total number of jobless Filipinos to 7.3 million.

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The record drop in GDP showcased the "destructive impact of lockdowns on the consumption-dependent economy," said ING Bank economist Nicholas Antonio Mapa. With unemployment expected to climb, Mapa said a quick turnaround in consumption behavior was unlikely.

Households are also expected to keep spending in check due to lower dollar remittances from abroad and a fractured labor market, Mapa said in an e-mail.

President Rodrigo Duterte's economic managers are expected to hold a press conference on the GDP data later in the day.

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