Updated at 6:50 p.m. ET on 2020-08-06
The Philippine economy is in a recession after shrinking by 16.5 percent in the second quarter – its worst three-month performance in at least 39 years – officials said Thursday, as the nation overtook Indonesia to post the highest number of coronavirus cases in East Asia.
The sharp contraction in gross domestic product from April through June was the worst since 1981, when the government began keeping records on economic performance. The new numbers officially sent the Philippines into recession because it had recorded back-to-back negative growth during the first two quarters of 2020, according to the Philippine Statistics Authority.
“Our country is facing the biggest crisis in nearly eight decades. How we respond to the COVID-19 pandemic and how united we are in facing this common threat will determine the course of our nation,” Karl Kendrick Chua, the secretary for socio-economic planning, told a virtual news conference.
The economy retreated about 0.7 percent in the first three months of the year, largely due to the eruption by the Taal volcano near Manila in January. But ripple effects from the coronavirus pandemic plunged the economy into deeper turmoil after the government in mid-March imposed a coronavirus lockdown in Metro Manila and other provinces on the main Philippine island of Luzon.
The release of the grim economic figures coincided with the Department of Health updating its numbers on confirmed coronavirus cases. It reported that 3,561 new COVID-19 cases were confirmed within the previous 24 hours, raising the nationwide total to 119,460. It also reported 28 new deaths, bringing the toll to 2,150.
With the new numbers, the Philippines became the epicenter of the coronavirus pandemic in Southeast and Northeast Asia, overtaking Indonesia’s 118,753 cases. However, both countries lag behind the South Asian nations of India, Pakistan and Bangladesh in the number of confirmed cases.
Globally, more than 18.8 million COVID-19 infections and more than 708,000 deaths had been recorded as of Thursday, according to disease experts at U.S.-based Johns Hopkins University.
Philippine economists had said the downturn was expected after the government shut businesses, restaurants, travel and leisure to address the infection rate.
While the agriculture sector posted 1.6 percent in growth, services and industry shrank by 22.9 percent and 15.8 percent, respectively, the Philippine Statistics Authority said. Nearly all sectors contributed to the decline, including hotels and restaurants, which fell 68 percent.
“We are all on the same boat,” said Astro del Castillo, managing director of First Grade Finance Inc. “It was not really a surprise, everyone was expecting it, but it was a bit steeper than most projections.”
People will be watching how the government will respond and whether some economic adjustments will bear fruit despite an extended COVID-19 lockdown.
“We really have to tighten our belts further. There are a lot of uncertainties that will hound us as the lockdown continues,” he said. “While the wheels of the economy [are] really hard to get moving at the moment, everyone, the public, should really cooperate.”
A new lockdown
Earlier this week, President Rodrigo Duterte announced that the capital region would return to a two-week quarantine after medical groups warned that the health care system would be overwhelmed if no action was taken.
Duterte has pinned his hopes on China, which has promised that the Philippines would be among the first countries to receive a COVID-19 vaccine should one be developed.
Del Castillo said most analysts expected the economy to return to normal by 2022 depending on the development of a vaccine.
Chua, the National Economic and Development Authority’s socio-economic planning secretary, said the quarantines were necessary.
“As local transmission of the virus surged in March 2020, we made the very difficult decision of placing a large part of the economy in enhanced community quarantine because the priority was clearly to save lives from COVID-19,” he said. “This decision is worth the lives saved.”
Chua said that if action had not been taken, as many as 3.5 million coronavirus cases could have been recorded and would have overwhelmed the health care system.
He acknowledged that the quarantines had “come at a great cost” as they shut down about a third of the overall economy. For the entire year, the government is projecting the economy will contract by 5.5 percent.
“Our initial response to the pandemic assumed a six-month infection period similar to SARS in 2003, and thus, like the rest of the world, we took stringent measures to contain the virus,” he said.
“Today, we know more about the virus, how it spreads and how to avoid it. We now know that the virus is not going to go away easily and we will have to live with it for a longer period of time,” he said.
He pointed to Australia, Japan and Hong Kong as places that appeared to have contained COVID-19 but were experiencing surges in infections.
“Clearly, this will be a drawn-out struggle. We are in a marathon rather than a sprint,” he said. “As we learn that we cannot deliver a finishing blow to this pandemic or to the economic crisis until a vaccine is developed, we will need to ensure that our response addresses the present needs of our people without exhausting our resources for future needs.”
Meanwhile, Finance Secretary Carlos Dominguez said sound macroeconomic fundamentals had contributed to the country’s favorable credit rating.
“How close to normal we can live until then depends on everyone’s efforts,” he said. “What makes this crisis different is how prepared our fiscal position is now for a challenge of this scale.”
CORRECTION: The photo caption in an earlier version misidentified the market as the Magsaysay Market in Dagupan, Philippines.