By Luz Wendy T. Noble
THE GOVERNMENT could miss its growth target this year after Luzon was locked down to contain a coronavirus disease 2019 (COVID-19) outbreak, even as growth is expected to pick up in the third quarter and recovery by 2021, according to Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno.
The central bank chief also said “aggressive” fiscal stimulus and the continuation of infrastructure projects, paired with an appropriate monetary stance, will help buoy the economy.
With Luzon accounting for about 70% of the country’s gross domestic product (GDP), the economy could grow by 5-5.5% this year after a below-target 5.9% expansion last year, Mr. Diokno said, citing BSP estimates.
“BSP forecasts that the Philippines might grow by 5 to 5.5%, down from 6.5-7.5% original forecast, but still the highest among ASEAN-6 countries,” Mr. Diokno said in a text message.
“I expect a U-shaped recovery starting Q3 this year; full recovery is expected next year, with the economy growing at 6.8%,” he added.
The BSP said among the sectors that will feel the brunt of COVID-19’s effects are services, tourism, trade, and remittances.
“In addition, the implementation of the enhanced community quarantine in Luzon could further dampen domestic economic activity,” the central bank said in a separate e-mail statement.
Luzon has been placed under enhanced community quarantine as part of government efforts to contain the virus.
The Health department reported 73 new infections on Sunday, raising the total to 380, with 25 deaths.
Mr. Diokno said authorities must deploy measures that will complement the BSP’s easing stance to help shield the economy from the impact of the virus outbreak.
“The government needs a substantial, aggressive, and easily implementable fiscal stimulus to go hand in hand with BSP’s appropriate monetary stance,” he said.
On Thursday, the Monetary Board announced a 50-basis-point (bp) rate cut following global central banks’ moves to ease policy and provide stimulus to help countries cope with COVID-19’s economic impact.
With this, the overnight reverse repurchase rate was reduced to 3.25%, while overnight lending and deposit rates now stand at 3.75% and 2.75%, respectively.
The BSP had already slashed rates by 25 bps in February. Mr. Diokno on Sunday said the central bank has enough policy space, even as it has already unwound a total of 150 bps since 2019 out of the 175 bps in hikes implemented in 2018.
The central bank chief said the BSP’s policy easing should be paired with the continuous implementation of the government’s infrastructure program as well as the passing of laws that could boost the attractiveness of the country as an investment destination.
“The national government should also make sure that its audacious Build, Build, Build program is implemented with little delay. Congress should also approve the Executive’s priority legislation that will improve the attractiveness and competitiveness of the Philippine economy,” Mr. Diokno said.
Sought for comment, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said measures should be in place to help the most vulnerable sectors.
“Increased government spending measures need to be prioritized, with immediate positive effects on the most vulnerable sectors such as the unemployed, marginalized, and other adversely affected businesses,” Mr. Ricafort said in a text message.
He noted that financial relief for households and businesses have already been implemented in other countries like the United States.
Meanwhile, UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion cited House Bill 6606 which sets aside P108 billion for a stimulus package in response to the COVID-19 outbreak.
The bill, filed by Marikina Representative Stella Luz A. Quimbo, allots P43 billion for the tourism sector which is said to be the hardest hit by the outbreak, while P65 billion will be allotted for cash transfers and support for workers affected by the lockdown.
“BSP can address the demand-side only at a certain point… Congress must get its act together with various executive department agencies in addressing the supply-side with a great and appropriate fiscal rescue plan,” Mr. Asuncion said in a text message.
According to Mr. Asuncion, a coordinated government response is crucial in battling the pandemic, noting he sees a continued rise in cases globally until June.
“But the impact of the virus may last longer and the global economy will never be the same pre-pandemic,” he said, adding there could still be new cases after June, though with slower increases.
“There will still be risks of small outbreaks when people start going back to work unless a vaccine or an anti-viral drug comes out. So, it will not be business as usual immediately. Economic work to recovery may take some time,” Mr. Asuncion said.