BSP expects contraction in second, third quarters

The Bangko Sentral ng Pilipinas expects the gross domestic product to post a negative growth in the second and third quarters amid the impact of the enhanced quarantine in Luzon which the government imposed to contain the spread of coronavirus.

BSP Governor Benjamino Diokno said while growth in the first quarter could remain positive at around 3 percent, it is forecast to become negative in the second and third quarters, before picking up in the fourth quarter.

“We’ll try to avoid recession as much as possible. We have 84 quarters of continuous growth since the Asian financial crisis. I think the Philippines is resilient enough. I think, if we do the right thing, we can avoid a recession,” Diokno said in an interview over ANC.

Private sector economists also expect a significant slowdown in GDP growth in the first quarter but anticipate a “V” kind of recovery after the onslaught of the pandemic.

“Undoubtedly, GDP growth will take a big slice in the first quarter thanks to COVID-19, albeit the magnitude remains uncertain,” economists from the First Metro Investment Corp. and University of Asia & the Pacific said in a joint report.

The economists said the positive prints in employment and inflation and the 50-basis-point cut in policy rates to 3.25 percent by the Bangko Sentral should offset the output losses.

“In addition, front-loading of infrastructure and government spending should also ease the pain. We see a V-type of recovery as soon as the spread and fatality rates of the virus clearly decelerate,” they said.

Inflation in the first two months averaged 2.8 percent, below the midpoint of the target range of 2 percent to 4 percent.

The Bangko Sentral also reduced the banks’ reserve requirement ratio by 200-bps to 12 percent from 14 percent.

“Understandably, the ultimate negative impact of COVID-19 on the economy remains uncertain since the extent of local and global spread and resource immobility loom open-ended for now. Nonetheless, there are positive factors that can offset these,” the economists said.

ING Bank Manila senior economist Nicholas Mapa said in a report that growth would depend on the length of the quarantine period and the size of the government’s fiscal rescue package.

“The length of the ECQ however may not easily be determined although we hope and pray that we can get a hold of virus to be able to finally lift the ‘lockdown.’ What government can however more easily address is how they respond to the current situation and impending economic fallout that follows,” Mapa said.

“Given that the mainstay household consumption component of the economic is also on quarantine, investment appetite is all but curtailed by the uncertainty and global trade halted by the virus, where else can we expect growth to emanate from if not from government spending?” Mapa said.

The enhanced community quarantine in Luzon is set to end on April 12, 2020.

Topics: enhanced community quarantine , Bangko Sentral ng Pilipinas , Benjamino Diokno , COVID-19 , Nicholas Mapa
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