Contrary to the new economic team’s hype, research group IBON said that the quarter-on-quarter contraction of the economy in the second quarter of 2022 shows that recovery remains weak and requires more determined government action. IBON said that reopening the economy is not enough because too many Filipinos are still jobless, earn too little, and are forced to lower their consumption by inflation. The contraction needs to be addressed with a substantial stimulus in the upcoming 2023 national budget or even earlier.
Looking at the seasonally-adjusted national accounts, IBON said that the 0.1% contraction in gross domestic product (GDP) in the second quarter of 2022 is alarming. This is the first contraction since the 14.5% contraction in the second quarter of 2020, at the height of lockdowns, and the only recorded contraction outside of a major global economic upheaval.
Before the pandemic the only other quarter-to-quarter contractions were: after the 1997 Asian financial crisis (with -1.7% and -0.5% GDP growth in the second and third quarters of 1998); after the 2001 Dot-com crash (-0.3% in the fourth quarter of 2021); and after the 2008 global financial crisis (-0.2% in the first and fourth quarters of 2008 and -2.4% in the first quarter of 2009).
The group highlighted the large 2.7% contraction in household final consumption expenditure (HFCE) because HFCE normally accounts for some 70-75% of the economy. Despite the economy reopening, the household spending of millions of Filipinos is repressed by high unemployment, pervasive poor quality and informal work, and accelerating inflation.
The decline in the number of Filipino families with savings is an indirect indicator of weak household incomes. Bangko Sentral ng Pilipinas (BSP) data shows that the number of households without savings increased to 70.3% or 18.8 million in the second quarter of 2022 from 68.9% or 18.7 million in the previous quarter.
IBON referred to seasonally-adjusted growth rates because, with the country still recovering and in crisis, these capture how the economy is progressing in real-time better than the year-on-year figures.
IBON said that this economic contraction is not an anomaly but a red flag that the country’s economy and Filipino households are struggling. This could worsen unless the new administration ensures that the 2023 national budget provides a substantial stimulus such as with significantly larger funds for social protection and support for small businesses and production sectors, said the group.