Philippine economy shrinks more than expected in Q1 on prolonged lockdowns

MANILA (REUTERS) – The Philippine economy shrank by more than expected in the first quarter of 2021, supporting views that the central bank will keep interest rates at a record-low at a policy meeting on Wednesday (May 12).

Gross domestic product fell 4.2 per cent in the March quarter from a year earlier, the statistics agency said on Tuesday, marking the fifth straight quarter of declines amid pandemic-induced lockdowns.

Economists in a Reuters poll had expected the GDP to contract 3.0 per cent after slumping 8.3 per cent year-on-year in the previous quarter.

Among the major economic sectors, agriculture declined by 1.2 per cent while services and industry contracted by 4.4 per cent and 4.7 per cent, respectively.

On the demand side, household consumption shrank 4.8 per cent, but government spending grew 16.1 per cent.

The economy’s performance, however, improved on a sequential basis, growing 0.3 per cent from the previous quarter on seasonally adjusted terms.

“The country’s strong economic position before the pandemic and improving economic data in recent months point to an economy that is on the mend,” Economic Planning Secretary Karl Chua said at a briefing.

The South-east Asian country is battling one of Asia’s worst coronavirus outbreaks with more than a million cases recorded and more than 18,000 deaths since last year.

The economy’s extended slump is expected to prompt the central bank to keep its benchmark interest rate unchanged at a record low of 2.0 per cent on Wednesday for a fourth consecutive meeting, according to all 13 economists in a Reuters poll.

Some economists even expect the BSP to keep rates unchanged for the rest of 2021, despite high inflation that has breached its 2 per cent-4 per cent target band mainly due to tight pork supply.

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