Philippine GDP outlook dims with stricter lockdown

Beatrice M. Laforga and Jenina P. Ibañez, Reporters

THE PHILIPPINE economy’s recovery will likely be derailed again after the capital region and its nearby provinces are once again placed under the strictest form of lockdown starting today, economists said.

The week-long lockdown in Metro Manila, Bulacan, Cavite, Laguna and Rizal will likely reverse any gains made in the early part of the first quarter and further dampen investor and business confidence, John Paolo R. Rivera, economist at Asian Institute of Management said in a Viber message on Sunday.

“The momentum is disrupted again. While Q1 output growth is not expected to be outstanding/significant (relative to Q1 2020), the rate at which it is recovering will still be slow because the recovery path is not consistent. The key here is consistency,” Mr. Rivera said.

“It will affect investor, business, consumer confidence again because until now, we’re still implementing draconian measures to contain the pandemic despite availability of vaccines.”

Mr. Rivera said the policy of the government to revert to lockdown when addressing surging coronavirus infections may cause investors to divert their funds to economies with more stable economic outlook.

The World Bank in a report on Friday said the country’s reliance on lockdowns instead of the more effective test-based strategies used by other economies is among the causes why the Philippines is lagging behind in economic recovery.

The Health department reported 9,475 new COVID-19 cases on Sunday, bringing the total to 721,892 so far.

The one-week strict lockdown is expected to have a “minimal” impact on the economy, Presidential Spokesperson Herminio “Harry” L. Roque, Jr. said, noting that government, private offices and financial markets will be closed on Maundy Thursday (April 1) and Good Friday (April 2) anyway.

Malacañang on Sunday announced more businesses are allowed to operate at full capacity during the enhanced community quarantine (ECQ), such as business process outsourcing (BPOs) establishments, export-oriented businesses, and mining and quarrying sector. 

It earlier said full operations are allowed for all public and private hospitals, healthcare services, manufacturers of medicine and medical supplies, agriculture and fishery sector, and delivery and courier services transporting food, medicine and other essential goods.

Exporters will barely be affected by the ECQ unless it is extended, Philexport President Sergio R. Ortiz-Luis, Jr. said in a phone interview.

Electronics exporters will be allowed to operate at full capacity with “strict compliance to safety protocols,” Semiconductor and Electronics Industries in the Philippines, Inc. (SEIPI) President  Danilo C. Lachica said in a mobile message.

“Just (hope) that LGUs do not inhibit passing of workers through checkpoints,” he said.

British Chamber of Commerce of the Philippines Executive Director Chris Nelson said that the shortened workweek limits the disruption to businesses.

“In that case, the British companies (in the Philippines) will adjust okay,” he said in a phone interview, adding that the chamber supports localized lockdowns.

“We’re still getting significant interest in the Philippines from companies who are obviously looking at trade and investment opportunities. We’ll constantly stress the longer-term potential,” Mr. Nelson said. “If it is a localized lockdown, that would not necessarily affect investment. It is a very specific barangay or section — obviously the companies look at the overall economic outlook.”

IMPACT ON OPERATIONS
Nonessential retailers and dine-in restaurants will have no revenue as they have to shut down this week, Roberto S. Claudio, vice-chairman of the Philippine Retailers Association, said in an e-mail.

He said that it is not yet clear if the transport of nonessential goods sold online will be stopped at checkpoints.

“This is our only way to reduce our losses during this ECQ. We have no choice but to comply with the government mandated lockdown,” he said.

“We urge the government to prioritize and accelerate vaccination programs. The economy is already crack(ing) in the weight of the repeated lockdowns. The focus should be in the containment not the frequent lockdowns.”

While tighter restrictions will reduce production, sales and income of hard-hit sectors, Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael L. Ricafort said the adverse impact on business confidence can be partially offset by the signing of the law that will bring down corporate income tax and streamline incentives.

President Rodrigo R. Duterte signed Republic Act 11534 or Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act on Friday, slashing the corporate income tax for small businesses to 20% from 30% starting July 2020. The tax rate for all other companies, meanwhile, will be reduced gradually to 25% starting July 2020 and will be cut further by a percentage point each year from 2023 to 2027 until it reaches 20%.

Mr. Ricafort said the lower income tax rate and greater certainty over the country’s fiscal incentive systems could boost gross domestic product’s (GDP) growth by 0.5%-1% each year and help attract more foreign investments.

The Department of Finance (DoF) said in an economic bulletin on Sunday that managing risks of the ongoing health crisis will allow the resumption of more economic activities.

It said the government’s infrastructure program and structural reforms, including CREATE Act and amendments to existing laws limiting foreign ownership, should boost the economy’s medium- to long-term growth prospects.

“More enterprises will, in turn, translate into more employment and, in the process of attracting the best workers, higher wages. In other words, more employers not only generate higher employment but also potentially higher wages — without having to raise the minimum wage,” the DoF said.