Economic team in tatters: Diokno runs out of ammo, Dominguez under pressure to stop freefall

In ING’s latest Philippine economic report, senior economist Nicholas Mapa said the second quarter gross domestic product meltdown “(showcased) the destructive impact of lockdowns on the consumption-dependent economy.”

President Rodrigo Duterte placed the Metro Manila and most of Luzon under enhanced community quarantine for the entire second quarter which Finance Secretary Sonny Dominguez endorsed. Metro Manila and parts of Luzon are back under a two-week ECQ after a two-month break because the government failed to boost testing and hospital capacity and isolation facilities during the world’s longest and most stringent lockdown.

The second quarter resembled a disaster area as household spending plummeted 15.5 percent, construction slipped 32.9 percent and capital investments dropped 62.1 percent “as investor sentiment evaporated amidst the pandemic and 17.7 percent unemployment,” said Mapa.

“With record-high unemployment expected to climb in the coming months, we do not expect a quick turnaround in consumption behaviour, all the more with Covid-19 cases still on the rise. With consumption dropping by 15.5 percent, investor sentiment will likely go into freefall with the recent investment boom snuffed out by the pandemic,” he added.

Bangko Sentral ng Pilipinas Governor Ben Diokno has done his part by easing interest rates early this year but Mapa believes the central bank “might be running out of ammunition as real policy rates have turned negative.”

This means the country will have to depend largely on government spending to tow it out of a recession. But Dominguez has doggedly opposed Congress’ P1.3 trillion economic stimulus fund and instead pushed for a token P140 billion additional spending in 2021 endorsed in the Senate, to keep on track his bid for credit rating legacy.

But Mapa doubts Dominguez’ strategy to spur a bounce back through infrastructure projects in his much-hyped “Build” program, called by Senator Frank Drilon as a “dismal failure.”

“(Build) could help revive construction activity to some extent. However, given that household spending is expected to be sidelined for the foreseeable future due to a fractured labour market and a downturn in remittances, the Philippine economy is likely headed for a base effect-induced bounce in 2021 and a return to the lower 3.5 to 4.5 percent growth trajectory of yesteryear by 2022,” said Mapa.