MANILA/KUALA LUMPUR -- The Philippine economy contracted by 4.2% on the year in the January-March period, extending its recession to a fifth straight quarter, while Malaysia's shrank 0.5% as both countries battle waves of COVID-19.
The latest gross domestic product figures, announced by the Southeast Asian countries on Tuesday, come as Philippine President Rodrigo Duterte and Malaysian Prime Minister Muhyiddin Yassin shoot for growth targets of up to 7.5% this year. But after a pandemic-marred 2020, the persistence of the coronavirus is fogging the outlook, with Malaysia resorting to a new lockdown on Monday.
The Philippine Statistics Authority made its announcement just ahead of a central bank interest rate decision scheduled for Wednesday, and amid a fresh coronavirus crisis that saw restrictions tightened in March and new daily infections reach about 11,000 in mid-April.
The first-quarter result was worse than expected: Economists polled by Reuters had forecast a 3.0% contraction.
On seasonally adjusted quarter-on-quarter basis, the Philippines did eke out 0.3% growth in the first period, but the pandemic continued to dampen consumer confidence. Household consumption, which accounts for over 70% of the economy, fell 4.8% amid a still-elevated unemployment rate coupled with above-target inflation blamed on food supply constraints.
This five-quarter slump is the Philippines' longest recession since it recorded nine straight quarters of negative growth in the last years of martial law in the 1980s.
Socioeconomic Planning Secretary Karl Chua said the second quarter will likely bring a return to positive territory -- compared with the 16.9% plunge in the same period last year, when 75% of the economy was shut down. "I don't think a negative second quarter growth is plausible," he said in an online news conference.
"We are relying on this policy of recalibrating our quarantine restrictions so that instead of having blanket restrictions, we have more risk-managed ones, wherein we open as many sectors as we can," Chua added.
Still, the road ahead is anything but clear. Infections are trending downward again. Yet the ongoing struggle raises questions about the prospects for reaching the targeted full-year growth range of 6.5% to 7.5%, after last year's 9.6% plunge -- the country's worst postwar recession and the deepest contraction in Southeast Asia.
The Asian Development Bank, in its latest outlook, expects the Philippine economy to expand 4.5% this year.
"The growth outlook remains relatively downbeat with authorities recently tightening partial lockdown measures further in April as COVID-19 infections spiked," observed Nicholas Mapa, senior economist at ING Bank Manila. "These tighter mobility curbs remain in place in the capital region and surrounding provinces and will likely shave off momentum from the economic recovery."
As for Malaysia, the first-quarter result is much improved from the 3.4% contraction seen in the fourth period of 2020 and 5.6% shrinkage for all of last year. The 0.5% fall also beat the median estimate of economists polled by Reuters, which had been -1.9%.
This reflects the easing of movement restrictions during the January-March 2021 period and improved domestic demand, particularly private-sector expenditure, according to central bank Gov. Nor Shamsiah Yunus.
She said the economy was supported by robust exports, particularly for electrical and electronic products.
"The imposition of the second Movement Control Order and the continued closure of international borders and restrictions on interstate travel, however, weighed on economic activity," she said, noting that the economy had gradually picked up in February and March as rules were relaxed. In March, growth hit 6%.
However, Muhyiddin's government now faces a familiar predicament of attempting to contain the virus without unduly choking the economy. Infections continue to trend upward despite a monthslong state of emergency, prompting the prime minister to respond on Monday with a ban on all social gatherings, school closures and other restrictions until early June.
A Kuala Lumpur bazaar on May 8: Malaysia's government is attempting to curb a coronavirus wave without excessively stifling the economy.
© Reuters
Muhyiddin did say all economic sectors would be allowed to remain open -- a point Nor Shamsiah highlighted as she argued the pain would be less severe than that experienced in 2020.
"While the growth outlook continues to be shaped by developments surrounding the pandemic, the implementation of containment measures which are mainly aimed at curbing social activities and allow almost all economic sectors to operate would minimize the impact on economic activity," she said.
She said the central bank was maintaining its full-year growth projection of between 6% and 7.5%, supported by domestic demand, private investment, policy support and recoveries in key trading economies such as China, the U.S. and Singapore.
"This will also be reflected in the recovery in labor market conditions, especially in the gradual improvement in hiring activity," she said, adding that the rollout of COVID-19 vaccines would also brighten sentiment.
The ADB projects Malaysia will come in at the low end of the central bank's projection, at 6%.
