GDP shrinks 16.5% in 2Q

PHILIPPINES - In Brief 06 Aug 2020 by Romeo Bernardo

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The strict lockdown imposed in 2Q to curb the spread of covid-19 resulted in the steepest drop in GDP for one quarter since the time series started in the early 80s. The 16.5% GDP contraction reflects a 20% shock to domestic demand, particularly household spending and investments which fell 15.5% and 53.5%, respectively. Offsetting the losses were increased government consumption and a significant narrowing of the trade gap, from 10% of GDP in 2Q19 to 6% in 2Q20. The trade deficit shrank following a larger contraction in imports (reflecting weak domestic demand) versus exports (reflecting weak global demand). On the supply side, the lockdown restrictions are reflected in the double-digit drops in the outputs of industry, particularly manufacturing, and services, particularly tourism-related sectors.Despite continuing constraints in mobility due to limited public transportation, activity has gradually increased starting in June when Metro Manila transitioned to a less restrictive form of lockdown (GCQ). Early indicators of improving activity have been observed in such areas as port utilization, energy demand, mobile usage and online shopping. These early indicators signal better 3Q GDP numbers relative to 2Q, although we think domestic demand will continue to be weighed down by poor sentiments following the resurgence of covid-19 infections under GCQ and the re-imposition of tighter restrictions. The return to stricter lockdown, with government unable to provide fresh subsidies, with high joblessness, underemployment and diminished or even depleted household savings especially among the majority lower income groups, and with remittances having fallen by over 25% in real...