Philippines GDP down 16.5%; new COVID surge to delay recovery

MANILA - GDP in the Philippines contracted by 16.5% y/y in Q2, reflecting the full extent of COVID-19 containment measures implemented during March-April. In a research note, ANZ Bank says a recent resurgence of infections and re-imposition of mobility restrictions could delay the recovery.

"Although monetary policy can be eased further, the larger burden is on fiscal policy," it says. "Amid a multitude of domestic and external risks, we will be revisiting our 2020 GDP forecast."

Both private consumption (-15.5% y/y) and investment (-37.8% y/y) plummeted, dragging Philippines' GDP growth down by almost 21%.

Exports fell by 37.0% y/y, but since imports declined by a greater margin (-40.0% y/y), net export growth supported growth by 4.9%.

ANZ said a similar narrative had unfolded on the supply side, with manufacturing and services activity declining 21.3% y/y and 15.8% y/y, respectively.

Industries that had been impacted by social containment measures and the decline in tourism performed exceptionally poorly - there was a 68.0% y/y fall in Accommodation and Food services, for example, ANZ said.

A partial offset to weak services growth was provided by resilient growth in the Information and Financial services industries, as globally, the information and communications sector had benefitted from a rise in telecommuting, e-commerce and online education.

ANZ described the growth outlook for the Philippines was "challenging". "Recent reimposition of mobility restrictions on the back of surging infections will impede growth recovery," it said. "Real time indicators signal a very modest improvement.

"Private investment is likely to remain weak as well on the back of subdued business sentiment and excess capacity."

ANZ said aggregate demand would have to be boosted by increased fiscal spending, which remained below potential. www.research@anz.com  (ATI).