PH economy contracts 9.5% in 2020

·6 min read

THE Philippines’ gross domestic product (GDP) has declined by 8.3 percent in the last quarter of 2020, bringing the annual growth rate down by 9.5 percent, the Philippine Statistics Authority (PSA) announced Thursday, Jan. 28, 2021.

This is worse than the 7.3 percent contraction in 1984-1985, when political unrest led to a recession and the 0.5 percent decline in 1998 due to the Asian financial crisis.

However, the PSA said the country’s GDP posted a quarter-on-quarter growth of 5.6 percent in the fourth quarter, after shrinking by 11.5 percent in the third quarter and by 16.9 percent in the second quarter.

The -16.9 percent growth in the second quarter was the lowest recorded quarterly growth starting the 1981 series.

In a press conference Thursday, National Statistician Claire Dennis Mapa said per capita GDP growth rate was -9.5 percent based on the projected population of 109.1 million in the fourth quarter.

Annual per capita GDP for 2020 was -10.7 percent, the agency added.

Growth rates of gross national income (GNI) and net primary income or NPI from the rest of the world were -12 percent and -53.2 percent, respectively.

For the whole year, the PSA said industry posted the largest decline of -13.1 percent. Services and agriculture also posted declines of -9.1 percent and -0.2 percent in 2020.

On a seasonally-adjusted basis, industry and services posted positive quarter-on-quarter growth rates of 11.6 percent and 4.5 percent, respectively.

Agriculture, however, posted a quarter-on-quarter decline of -4.1 percent.

“All three major sectors pulled down the growth of the economy in the fourth quarter,” Mapa said.

Agriculture, industry and services contributed -0.3 percentage point, - 3.1 percentage points and - 4.9 percentage points, respectively.

Similarly, these also pulled down the annual economic growth, contributing -0.02 percentage points, -4.0 percentage points, and -5.5 percentage points, respectively.

The major contributors to decline from the production side in the fourth quarter were: construction (-3.3 percentage points); real estate and ownership of dwellings (-1.6 percentage points); and manufacturing (-1.6 percentage points).

On the demand side, imports of services posted the largest contraction in the fourth quarter at -36.4 percent.

Government final consumption expenditure and Intellectual property products posted positive growth of 4.4 percent and 1.3 percent, respectively.

Major contributors

The major contributors to decline from expenditure side in the fourth quarter were construction (-5.9 percentage points); household final consumption expenditure (-5.4 percentage points); and durable equipment (-1.7 percentage points).

Joint statement

In a joint statement released by Duterte’s economic managers Thursday, the team pointed out the lockdown-induced disruptions, typhoons, African swine fever and the weak global sentiment due to the Covid-19 pandemic triggered the contraction in the economy.

“Covid-19 disrupted our growth momentum and development trajectory. To address this unprecedented crisis, the government made the difficult decision of imposing community quarantines as it put a premium on saving lives and protecting communities from the virus, while beefing up our healthcare capacity. This is not without any consequence. Like any policy decision that comes with trade-offs, this one came at a huge cost to the economy and the people,” the economic managers said.

The country’s GDP fell by 16.9 percent in the second quarter as a result of the economic restriction which also led to the rise in unemployment by 17.7 percent.

“In the fourth quarter of 2020, our economy performed better with a smaller GDP contraction of -8.3 percent. This brings the full-year GDP contraction to -9.5 percent, which is at the low end of the Department of Budget Coordination Committee estimate of -8.5 to -9.5 percent for 2020. On a quarter-on-quarter basis, the economy grew by 5.6 percent,” the statement reads.

“This improvement was the result of the further reopening of businesses and wider accessibility of public transport since October 2020. However, it also shows the limits of economic recovery without any major relaxation of our quarantine policy,” it added.

On the demand side, private consumption, which comprises some 70 percent of GDP, remained weak with a -7.2 percent growth.

Quarantine restrictions reduced household spending by P801 billion in 2020 or an average of around P2.2 billion per day. The fall in consumption translates into a total income loss of around P1.04 trillion in 2020 or an average of around P2.8 billion per day.

On a per capita basis, annual family income declined by some P23,000 per worker, but this average masks wide differences across sectors and jobs. Some workers were hit much harder, while others lost their jobs completely.

Meanwhile, government consumption grew by 4.4 percent, despite the high base in 2019.

On the supply side, further opening of the economy led to smaller contractions in industry, manufacturing and services growth. However, agriculture performance deteriorated and contracted by 2.5 percent due to a series of typhoons, flooding, and the African swine flu.

Six typhoons, namely typhoon Nika, Ofel, Pepito, Quinta, Rolly and Ulysses, caused some P16.6 billion worth of losses and damage to agriculture. To prevent further spread of the disease, some 432,000 hogs were culled.

Growth in 2021

Despite this, the team said prospects for 2021 are encouraging.

“With the continuous calibrated reopening of businesses and mass transportation, and the relaxation of age group restrictions, we will see more economic activity in the months ahead. This will lead to a strong recovery before the end of the year, when the government will have rolled out enough vaccines against Covid-19 for a majority of our people,” the statement said.

The DBCC estimated that the economy will grow by 6.5 to 7.5 percent in 2021 and by eight to 10 percent in 2022.

“The Duterte administration’s efforts to increasingly open the economy while taking resolute steps to fast-track the vaccination program and keep the Covid-19 caseload to the lowest level possible, would boost business and consumer confidence that are crucial to a robust economic recovery,” it added.

The government has allocated P72.5 billion this year to provide vaccines to at least 50 million Filipinos. Alongside the prospects for a mass vaccination program, the higher government spending through the Bayanihan II and the 2020 and 2021 budgets, as well as the swift congressional approval of our key legislative bills would underpin economic recovery this year and onwards.

“2021 will test everything: it will test our resiliency, our economic foundation, our healthcare system and even our personal grit. Our resolve to work together for the common interest will spell the difference between recovering sooner or much later,” the economic managers said. / Marites Villamor-Ilano/ KOC