BSP sees 'swoosh' shape recovery
MANILA, Philippines — The country’s economic recovery may take the shape of a “swoosh’’ as the contraction brought about by the COVID-19 pandemic is likely to extend until the first quarter of next year, according to the Bangko Sentral ng Pilipinas.
Named after the Nike logo, a ‘’swoosh’’-shaped recovery predicts a large drop, followed by a painfully slow recovery.
In a interview with ABS-CBN News Channel, BSP Governor Benjamin Diokno said the deepest contraction likely occurred in the second quarter as the entire Luzon was placed under enhanced community quarantine to slow the spread of the coronavirus pandemic. “The most difficult quarter is the second quarter and we are past that. I think we are now in the rebound stage. I see the recovery as like the Nike swoosh,” Diokno said.
Diokno said the BSP is looking at a less negative or slightly positive growth in the third quarter and the country is likely to have “a nice Christmas in the fourth quarter before a strong recovery in the first quarter of 2021.”
The economy contracted by 0.2 percent in the first quarter, ending 84 straight quarters of positive growth or since the three percent contraction in the fourth quarter of 1998 due to the Asian financial crisis.
“Manufacturing output shrank, while tourism-related services such as transportation, accommodation, and food service activities lost their momentum. Meanwhile, capital formation declined sharply due to the suspension of construction activities. Consumer spending was also almost unchanged, as people stayed at home in observance of lockdown protocols,” Diokno said.
Economic managers through the Development Budget Coordination Committee (DBCC) expect the GDP contracting by two to 3.4 percent this year before bouncing back strongly with a growth of eight to nine percent next year.
Iluminada Sicat, BSP Assistant Governor for Monetary Policy Sub-Sector, said the easing of the containment measures with the shift to moderate community quarantine would pave the way for economic recovery as the growth contraction was stronger in the second quarter as a result of the containment measures that were done.
“But we anticipate that there will be some recovery in terms of smaller contraction moving forward until the first quarter of 2021,” Sicat said.
To soften the blow of the pandemic, the central bank has unleashed P1.3 trillion to the financial system through various measures including the 175 basis points cuts in interest rates to an all-time low of 2.25 percent, the lowering of the reserve requirements for banks, the P300 billion repurchase agreement with the Bureau of the Treasury, the purchase of government securities in the secondary market, the suspension of the term deposit facility auction, the lowering of the volume of the overnight reverse repurchase facility, among others.
“All these monetary responses were possible largely because of the ample policy room afforded by a benign inflation environment and well-anchored inflation expectations,” Diokno said.
As a result, Diokno said the average inflation eased further to 2.3 percent in the second quarter from 2.7 percent in the first quarter. In the first half of the year inflation averaged 2.5 percent despite the uptick in June.
The BSP chief said authorities would remain data dependent in adjusting the country’s monetary policy stance amid the COVID-19 pandemic.
“The current monetary stance can hold for the next few quarters and I am positive that what we have done right now is sufficient. So let us see whether we need to do something more but e just keep our sight into our original program for BSP which is bringing people closer to the people,” Diokno said.
Diokno said the balance e of risks to the inflation outlook continues to lean toward the downside for 2020 up to 2022 owing to the potential of the pandemic to further dampen aggregate demand as well as the significant decline in global oil prices.
According to the BSP, inflation is likely to settle at 2.3 percent for this year and next year, well within the two to four percent target set by the central bank.