Negative Q1 GDP growth

PHILIPPINES - In Brief 07 May 2020 by Romeo Bernardo

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Although the Luzon-wide lockdown began only in the last two weeks of Q1, fear of covid-19 infection and international travel bans imposed earlier in the quarter had exacted their toll on the domestic economy which contracted 0.2% during the period[1]. GDP figures[2] released today show domestic demand, consisting of private and public consumption and investments, dropping 3.3% yoy in Q1. In particular, household expenditures barely grew given sharp drops in demand for restaurants and hotels and transport services, a reflection of preferences to stay home to avoid infection. A decline in remittances (-1% peso terms) affecting incomes and confidence did not help. At the same time, investments dove 18% due both to weaker fixed investments and a huge drawdown in inventories, likely related to the end-quarter lockdown. Offsetting a large part of the decline in domestic demand is the shrinkage in goods trade, with the deficit narrower by almost 20%. The latter in turn may be traced primarily to much lower imports, especially of goods that are part of global value chains, i.e., electronics and transport equipment, a reflection of China’s extreme lockdown measures to contain the covid-19 outbreak. On the supply side, seven of the 16 production sectors showed negative year-on-year growth rates, including notably manufacturing and construction under industry and tourism-related sectors under services (transportation and storage and accommodation and food service activities). When we wrote about a looming recession early last month[3], we were not anticipating a decline in GDP as early as Q1. Neither were we expecting that government would be extending the lockdown in its current...