Lockdown seen to set back GDP by less than 1%

MANILA, Philippines — While Metro Manila and four surrounding provinces account for half of the country’s economic production, the seven-day lockdown starting Monday would not likely be as bad as many fear.

In fact, economist Michael Ricafort of Rizal Commercial Banking Corp. (RCBC) estimated on Sunday that the lockdown would cause less than 1 percent loss in gross domestic product (GDP), or below P199 billion.

In a report published a day before the reimposed enhanced community quarantine, which also covered Bulacan, Cavite, Laguna and Rizal, Ricafort explained that this was because there are fewer working days during Holy Week anyway.

“The one-week [lockdown] during Holy Week would help achieve the least possible drag on the economy during the long holiday weekend,” Ricafort said, adding “the drag of the one-week [lockdown] on the economy could be about less than 1 percent of GDP.”

Nonetheless, it will “also slow down economic recovery prospects” and possible threaten the government’s aim to grow from 6.5 to 7.5 percent in order to bring nominal GDP to the almost-normal P19.98-trillion production in 2021.

GDP slid 9.5 percent last year—its worst performance since World War II—and the year-on-year contraction was expected to spill over to the first quarter of 2021 amid a slow reopening of the economy and still surging COVID-19 infections.

The jobless rate of 8.7 percent—equivalent to 4 million unemployed Filipinos—in January was a 16-year high across the survey rounds conducted at the start of each year.

Ricafort said the strictest restrictions would temper consumption and likely pull down prices of consumer goods in affected areas.

“The recent inflationary pressures would fundamentally ease as a result of the reduced demand conditions with less business and other economic activities due to the one-week [lockdown] in [Metro Manila and surrounding provinces],” he said.

Businesses are also looking forward to some relief to be provided by the newly enacted Corporate Recovery and Tax Incentives for Enterprises (CREATE) law, which slashed corporate income tax rates to 20 percent while other companies would enjoy a lower 25 percent, retroactive to July 2020.

Prior to the CREATE law, the Philippine corporate income tax rate of 30 percent was the highest in Southeast Asia.