MANILA – The Philippine economy is expected to contract this 2020 due to the global pandemic but Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said deployment of targeted measures will define the economic recovery.
In his speech during the briefing aired over BSP’s Facebook page, Diokno said the hit on tourism, exports, remittances from overseas Filipino workers (OFWs), and slower household consumption because of the community quarantines is a “big blow” on domestic output.
These are seen to be aggravated by the impact of slower global growth, which the International Monetary Fund (IMF) forecasts to post a -3 percent output because of the coronavirus disease (Covid-19) pandemic, he said.
The domestic economy, as measured by gross domestic product (GDP), contracted by 0.2 percent in the first quarter this year from year-ago’s 5.6 percent and the previous quarter’s 6.4 percent.
Diokno said monetary authorities expect a U-shaped recovery or gradual rebound for the domestic economy “with growth accelerating once the community quarantine is lifted and the necessary measures intended to stem the spread of the virus are implemented.”
He said domestic growth will “also recover more strongly once the fiscal and monetary stimulus measures gain traction and workers and firms resume operations.”
“As such, we emphasize that bouncing back from the crisis will depend on the deployment of targeted and all of government coordination to limit the economic fallout from the pandemic,” he said.
A community quarantine was implemented in Metro Manila starting March 15 but this was changed to an enhanced community quarantine (ECQ) for mainland Luzon beginning March 17 until April 12.
The quarantine period was extended until May 15 because Covid-19 cases continue to rise.
The extension is also aimed at giving authorities more leeway to evaluate the health crisis as testing capacity in the country improves.
The government has formulated a four-pillar Covid-19 response program, which includes the distribution of PHP205 billion worth of financial support, amounting to about PHP5,000-PHP8,000 depending on the location, to poor households and vulnerable sectors nationwide.
Another part of the response is a wage subsidy program amounting to about PHP51 billion that will be extended to about 3.4 million workers of the micro, small and medium enterprises (MSMEs).
Diokno said the central bank, in turn, has implemented several policy measures that include a total of 125 basis points reduction in its key policy rates, the 200-basis-point cut in the reserve requirement ratio (RRR) of universal and commercial banks (U/KBs), and the continued delivery of financial services even during the community quarantines.
He said the policy rates cuts to date is “appropriate to buffer the country’s growth momentum and boost market confidence amidst market headwinds”, while the RRR cut, along with approval of alternative modes of compliance among banks, “is also seen to encourage banks to lend and channel credit especially to the MSMEs.”
“We expect these monetary policy measures to have a cascading impact in market interest rates and liquidity, which would eventually translate to lower borrowing cost for the government as well as for firms and people,” he added.
Diokno said that while authorities are “disappointed” with the 0.2-percent decline in output in the first three months this year and expect contraction in the following six months, they are expecting a recovery in the last quarter.
He further said the budget delay and the construction ban before the election period in May last year resulted in a slowdown of domestic growth in the second quarter, but growth recovered in the second half of the year.
“On that basis, there’s hope that we may not end up in a recession this year. There could be a strong bounce back in the fourth quarter,” he added. (ia/PNA)