BSP PR
The 16.5% contraction of Q2 GDP does not mean that the Philippine economy is structurally weak. It is inappropriate to compare the Q2 performance of the economy with other crises in recent Philippine history: the 1984-85 pre-EDSA I crisis, the 1997-98 Asian Financial crisis; and the 2007-2008 Global Financial crisis.
I remember vividly that in previous crises, the peso depreciated, interest rates rose, public debt-to-GDP ratio expanded, gross international reserves thinned, and the banking industry wobbled. In sum, there were inherent weaknesses in the economy then. I recall that in the 80s, the Philippines belong to a select group called Heavily indebted countries (HICs).
In the most recent economic episode, the economy plunge because of the strict, nationwide lockdown to save lives and to allow the build up of health facilities and testing capacity due to the pandemic. It is not because the economy was weak.
The contraction is temporary. The economy is robust, characterised by strong fundamentals: falling interest rates falling, appreciating peso making it the most appreciated currency in Asia; sound external sector with gross international reserves as high as US$94 billion; low debt-to-GDP ratio which is the envy of many emerging economies; and robust banking industry with good capital adequacy ratio and low net performing loans ratio.
The setback is temporary. Recovery can come quickly once consumer confidence return, factories fired up, construction activity particularly the BBB Program is ramped up, and transportation is fully restored.
The immediate cause for the economic plunge in Q2, that is, the strict, nationwide lockdown is a thing of the past. In the near future while waiting for the vaccine, policy makers will opt for targeted, localised, village level lockdowns. Hence, the adverse economic impact on jobs, incomes , and livelihoods will be subdued.
