​4Q20 GDP: improving but weak

PHILIPPINES - In Brief 28 Jan 2021 by Romeo Bernardo

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As expected, the contraction in GDP declined from double digits in 2Q and 3Q to 8.3% yoy in 4Q following looser quarantine restrictions and increased supply of public transport. The 4Q level of activity was a 5.6% improvement over 3Q on a seasonally-adjusted basis. Nevertheless, the weakness of the domestic economy may be gleaned from the following:The pattern of growth on the demand side continued to show double digit declines in domestic demand (-11% yoy in 4Q), with only government consumption growing quite modestly (4.4%). A sharply lower trade deficit (9% of GDP vs. 12.7% in 4Q19) helped to partially offset the decline.The quarterly seasonally adjusted series showed growth in consumption spending decelerating sharply from 9.1% qoq in 3Q to 2.9% qoq in 4Q. In its statement[1], the economic managers noted that government’s policy curbing the mobility of children prevented a stronger recovery in family spending which drives about 50% of non-essential retail sales[2].The decline in investments was still at high double digits, close to 30% yoy in 4Q. The economic managers noted that inter-province travel restrictions kept construction workers from going back to work which saw construction activity shrink 34% yoy with public construction also falling by 15%.On the supply side, only 3 of the 16 major sectors eked out gains (information and communication, financial and insurance activities, and public sector activities), with agriculture unable to sustain its growth in previous quarters due to poor weather and disease-related drop in livestock and poultry production.Overall, the economy contracted by 9.5% in 2020 exactly as we have forecasted. Through a combination of “ca...