​Again, double-digit GDP contraction

PHILIPPINES - In Brief 10 Nov 2020 by Romeo Bernardo

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3Q GDP fell 11.5% yoy, “unsurprising” per the planning secretary given health and public transportation constraints that kept economic activity far below limits set by government. Were it not for the sizeable shrinkage in the external trade deficit, domestic demand alone would have dragged growth 15% lower as only government consumption managed to grow, modestly at that. Even public construction was unable to sustain a weak restart effort in 2Q, falling 28% yoy in 3Q. The good news is that 3Q activity was better than 2Q when GDP fell a revised 16.9% yoy and domestic demand dropped 19.7%. On a seasonally-adjusted basis, the improvement translated into an 8% qoq GDP gain with household spending rising 8.8% qoq. With government having shifted away from a risk avoidance mindset, progressively loosening quarantine restrictions and allowing more public transportation while strengthening disease management at the local levels, we expect continuing improvement in 4Q activity especially with government still to spend the bulk of its P140 billion supplemental budget. It will however still be an uphill struggle as we anticipate continuing voluntary social distancing on the part of consumers fearful that looser quarantine measures will lead to rising infections. The large decline in real peso remittances (-34% in 3Q, worse than -24% in 2Q) alongside poor investments and local jobs prospects also support this view. Given the economy’s performance to date, we now expect full year GDP to contract 9.5% (from 8.5% previously). Noteworthy today is that despite 3Q GDP falling below market expectations, the local stock market jumped 5%, joining global markets in welcoming news of a potent...