Virus-hit Philippine economy plunges into recession

Gross domestic product shrank 16.5 percent on-year in the second quarter. (File/AFP)
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Updated 06 August 2020

Virus-hit Philippine economy plunges into recession

  • The outlook for the archipelago is bleak, with the number of coronavirus infections surging past 115,000 this week
  • The country’s economic woes have been exacerbated by a drop in remittances from the legion of Filipinos working abroad

MANILA: The Philippines plunged into recession after its biggest quarterly contraction on record, data showed Thursday, as the economy reels from coronavirus lockdowns that have wrecked businesses and thrown millions out of work.
Gross domestic product shrank 16.5 percent on-year in the second quarter, the Philippine Statistics Authority said, when the country endured one of the world’s longest stay-at-home orders to slow the spread of the virus that has devastated economies globally.
It followed a revised 0.7 percent contraction in the first three months of the year and marked the biggest reduction in economic activity since records began in 1981 during the Ferdinand Marcos dictatorship. It is the country’s first recession in three decades.
The outlook for the archipelago is bleak, with the number of coronavirus infections surging past 115,000 this week — a more than fivefold increase since early June when the economy-crippling restrictions were eased.
“Without doubt, the pandemic and its adverse effect on the economy are testing the economy like never before,” said acting Socioeconomic Planning Secretary Karl Chua.
“But unlike past crises, the Philippines is now in a much stronger position to address the crisis.”
As health workers struggle to cope with the influx of patients, more than 27 million people in Manila and four surrounding provinces on the main island of Luzon — which accounts for more than two-thirds of the country’s economic output-- went back into a partial lockdown for two weeks on Tuesday to help ease the strain on hospitals.
But President Rodrigo Duterte, who was reluctant to tighten restrictions after millions lost their jobs in the first shutdown, has warned the country cannot afford to remain closed for much longer.
“The problem is we don’t have money anymore. I cannot give food anymore and money to people,” Duterte said Sunday.
The country’s economic woes have been exacerbated by a drop in remittances from the legion of Filipinos working abroad who typically send money to their families every month, which fuels consumer spending — the main driver of growth.
Remittances dropped 6.4 percent in the first five months, compared with the same period last year, according to the central bank, as thousands of seafarers, cleaners and construction workers lost their jobs and returned home.
Consumer spending in the second quarter plummeted 15.5 percent, the statistics agency said.
“It will be a rough road to recovery as trade-offs between economic recovery and health will remain a big challenge to both the private and public sectors,” said Emilio Neri, lead economist at Bank of the Philippine Islands.


Saudi Arabia looks to cut spending in bid to shrink deficit

Updated 37 min 29 sec ago

Saudi Arabia looks to cut spending in bid to shrink deficit

  • Saudi Arabia has issued about SR84 billion in sukuk in the year to date

LONDON: Saudi Arabia plans to reduce spending next year by about 7.5 percent to SR990 billion ($263.9 billion) as it seeks to reduce its deficit. This compares to spending of SR1.07 trillion this year, it said in a preliminary budget statement.

The Kingdom anticipates a budget deficit of about 12 percent this year falling to 5.1 percent next year.

Saudi Arabia released data on Wednesday showing that the economy contracted by about 7 percent in the second quarter as regional economies faced the twin blow of the coronavirus pandemic and continued oil price weakness.

The unemployment rate among Saudis increased to 15.4 percent in the second quarter compared with 11.8 percent in the first quarter of the year.

The challenging headwinds facing regional economies is expected to spur activity across debt markets as countries sell bonds to help fund spending.

Saudi Arabia has already issued about SR84 billion in sukuk in the year to date.

“Over the past three years, the government has developed (from scratch) a well-functioning and increasingly deeper domestic sukuk market that has allowed it to tap into growing domestic and international demand for Shariah-compliant fixed income assets,” Moody’s said in a statement on Wednesday. 

“This, in turn, has helped diversify its funding sources compared with what was available during the oil price shock of 2015-16 and ease liquidity pressures amid a more than doubling of government financing needs this year,” the ratings agency added.