Longer lockdown to weaken recovery

METRO MANILA, Bulacan, Cavite, Laguna and Rizal will remain under a modified enhanced community quarantine until May 14 as the country continues to have one of the worst coronavirus disease 2019 (COVID-19) outbreaks in the region. — PHILIPPINE STAR/ MICHAEL VARCAS

Beatrice M. Laforga, Reporter

THE Philippine economy’s recovery will likely be weaker than initially expected, as Metro Manila and major economic hubs remain under strict lockdown until mid-May amid the continued rise in coronavirus infections.

Nomura Global Research said in a note on Thursday that the economy is now expected to grow by 5.5% this year, slower than the previous estimate of a 6.8% expansion, due to the extension of the modified enhanced community quarantine (MECQ) which they assume will last for up to two months.

If realized, Nomura said the estimated gross domestic product (GDP) growth will be a “fairly weak recovery” from the record 9.6% contraction last year.

“The main rationales for our more cautious view include the significant economic impact of the lockdowns (even if less stringent than last year), the fragile starting point with unemployment rates rising again, limited prospects for a sizeable fiscal support package, and monetary policy that is hamstrung by inflation risks,” Nomura said.

President Rodrigo R. Duterte on Wednesday evening extended the MECQ in Metro Manila, Bulacan, Cavite, Laguna and Rizal until May 14 as the country continues to have one of the worst coronavirus disease 2019 (COVID-19) outbreaks in the region.

The Health department on Thursday reported 8,276 new cases, bringing the number of active cases at 69,354.

ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said this year’s 4.9% growth forecast will likely be cut if the lockdown will be further extended.

Both GDP estimates of ING Bank and Nomura are far below the government’s target of a 6.5-7.5% expansion this year.

“Should we do find ourselves in a situation of a lower growth trajectory, we can expect at least an outlook revision from one of the major credit ratings agencies with several houses, including the ADB (Asian Development Bank), slashing their initial growth forecasts for the year,” Mr. Mapa said in an e-mail.

ADB already cut its GDP outlook for the country to 4.5% from its earlier 6.5% forecast due to the prolonged lockdown.

“The protracted recession will sap even more momentum from the fledgling recovery and increases the likelihood that the Philippines does slip into a lower growth path in the coming quarters,” Mr. Mapa added.

If the hard lockdowns in Metro Manila and adjacent provinces will last for the entire second quarter, this could trim 1-1.2 percentage points from the full-year GDP, Security Bank Corp. Chief Economist Robert Dan J. Roces said in an e-mail.

“The likelihood of a less-than-expected economic growth increases given prolonged restrictions,” Mr. Roces said.

Slower economic growth also poses a threat to state’s coffers, as dampened economic activity will mean lower tax collections while the government has to prop up growth by ramping up spending further, he said.

“Prolonged curbs likewise entail that capital expansion be put on hold and this depresses bank lending further,” he added.

Meanwhile, Nomura said that the government’s slow vaccination rollout compared with its regional peers, will also be a threat to its economic recovery.

Nomura said that only up to 25% of the population in the country can be vaccinated by year’s end, leaving the Philippines vulnerable to virus resurgences throughout the year.

Sought for comment, the National Economic and Development Authority (NEDA) did not respond to queries at the deadline time.

NEDA previously estimated that foregone wages of workers due to the five-week lockdown from March 29 to April 30 could have reached P83.3 billion.

It said the two-week ECQ alone in early April may have shaved 0.8 percentage point off the GDP this 2021.

Economic managers are set to meet next month to review its growth targets.