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GDP contraction temporary, economy strong

BSP Governor Diokno’s assurance

Despite the recession, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said the economy is not weak and because it is fundamentally strong, the GDP contraction will not be permanent.

 “The setback is temporary,” said Diokno yesterday, who also called the negative reaction to the 16.5 percent second quarter GDP reduction “grossly exaggerated.”

 “Recovery can come quickly once consumer confidence return, factories fired up, construction activity particularly the BBB (Build, Build, Build) Program is ramped up, and transportation is fully restored,” he assured the public.

 Diokno said it is not accurate to compare the 16.5 percent second quarter GDP contraction to previous problematic times. “(It) does not mean that the Philippine economy is structurally weak. It is inappropriate to compare the second quarter performance of the economy with other crises in recent Philippine history: the 1984-85 pre-EDSA I crisis, the 1997-98 Asian Financial crisis; and the 2007-2008 Global Financial crisis.”

 Diokno, an economist and ex-budget secretary, said that in the 1980s, the Philippines was one of the heavily indebted countries. “I remember vividly that in previous crises, the peso depreciated, interest rates rose, public debt-to-GDP ratio expanded, gross international reserves thinned, and the banking industry wobbled. In sum, there were inherent weaknesses in the economy then.”

 This was not the case at present times. “In the most recent economic episode, the economy plunge because of the strict, nationwide lockdown to save lives and to allow the build up of health facilities and testing capacity due to the pandemic. It is not because the economy was weak. The contraction is temporary,” said Diokno.

 He added that the economy is “robust (and) characterised by strong fundamentals” such as “falling interest rates (and the) appreciating peso making it the most appreciated currency in Asia” as well as the “sound external sector with gross international reserves as high as $94 billion.”

 He also said that the “low debt-to-GDP ratio which is the envy of many emerging economies, and robust banking industry with good capital adequacy ratio and low net performing loans ratio” support the strong fundamentals.

 Diokno has said several times in the past that the worst is over.

 “The immediate cause for the economic plunge in the second quarter, that is, the strict, nationwide lockdown is a thing of the past. In the near future while waiting for the vaccine, policy makers will opt for targeted, localised, village level lockdowns. Hence, the adverse economic impact on jobs, incomes and livelihoods will be subdued,” he said.

 On the same day the government reported that the second quarter GDP shrinked to 16.5 percent, the inter-agency Development Budget Coordination Committee revised the full-year GDP forecast from a contraction of two percent to 3.4 percent to 5.5 percent because of the impact of the pandemic on key sectors such as remittances, tourism and trade.

Source: Manila Bulletin (

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