The Philippines — Severe and prolonged downturn amid virus woes

The Philippines fell into recession for the first time in nearly 30 years following a record 16.5% year-on-year slump in second quarter GDP (Chart). Domestic demand and business investment were severely hit amid strict lockdown measures initially imposed in mid-March and eased in June. The unemployment rate jumped to a record 17.7% in the June quarter, from 5.1% in the same quarter last year. The Philippines was among Southeast Asia’s fastest-growing economies before the pandemic. Indeed, Australia’s exports to the Philippines have doubled since 2014. However, among regional peers, only Malaysia fared worse in the second quarter, with output down 17.1%. Singapore’s output contracted 13.2%, Thailand 12.2%, Japan 9.9%, Hong Kong 9%, Indonesia 5.3%, while Vietnam managed to grow by 0.4%.

In response to a surge in COVID-19 infections, President Duterte has reimposed mobility restrictions in and around Manila, where more than half the country’s COVID-19 cases have occurred (178,000 cases as at 19 August). In contrast to Malaysia for instance, this has dampened prospects of a strong rebound in the third quarter. With household consumption accounting for over 70% of Philippines’s GDP—the highest share in the region—record unemployment, an unprecedented fall in remittances (which account for 10% of GDP), and increased poverty and inequality will further weigh on demand. Weaker investor sentiment and government spending on infrastructure due to the suspension of construction activities will also deprive the economy of its key growth driver in recent years. This suggests a relatively slow recovery in Australia’s 18th largest export market.