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Govt spending, key to economic recovery amid COVID-19

2020 October – Despite the fact that economic growth and activity have slowed down as a result of the persisting COVID-19 pandemic, government spending should still continue to fast track economic recovery.

Confidence booster. Marikina 2nd District Rep. Stella Quimbo says government needs to spend more even amid the pandemic to boost the country’s sagging confidence. She joined BDO Chief Investment Officer Frederico “Fritz” Ocampo as a guest in the recent Market Sense webinar, “Gearing up for Recovery.”

According to economist and Marikina (2nd District) Rep. Stella Luz Quimbo, government needs to spend even in the midst of a crisis in order to boost confidence levels of the public, especially businesses.

“In a bad economic crisis, confidence level is very low—confidence of consumers, confidence of your workers. Everyone’s afraid. Fear and anxiety have set in. Even business owners, they don’t want to invest. In fact, they’d rather close shop. So this is a situation where government must step in. If the government is not spending enough, then our confidence will be deflated,” Rep. Quimbo said as a guest in an episode of Market Sense, a monthly webinar series organized by the BDO Trust Group that combines the latest economic and market developments with seasoned expert advice to help investors take control of their investments and grow their wealth.

“We need government to spend because there’s a lot of market failures arising from the pandemic,” she added.

Rep. Quimbo is one of the principal authors of House Bill No. 6815, or the Accelerated Recovery and Investments Stimulus for the Economy of the Philippines (ARISE Philippines) bill which was already approved by the Lower House.

The bill calls for the release of P1.3 trillion in economic stimulus package to jumpstart the economy's recovery from the pandemic in the next four years. It aims to offer various forms of assistance to micro, small and medium enterprises and other sectors adversely affected by COVID-19, and targets to generate around 1.5 million jobs through various infrastructure projects and financial assistance to small businesses from 2020 to 2023.

Projections in 2020 and hopes for recovery in 2021

Meanwhile, BDO Trust Group is looking at a gross domestic product (GDP) contraction of 9.6% in the 3rd quarter, and a 6% contraction in the 4th quarter to bring its full year 2020 GDP projection to negative 8.3%.

Nonetheless, to echo Rep Quimbo’s call for more government spending, BDO Chief Investment Officer Frederico “Fritz” Ocampo said the country is poised for a recovery of 6.6% in 2021, as more government spending enters the economy.

“It would allow the economy to recover, and that would be the 2021 story,” he said. “We're facing a recession, which could be the deepest in 35 years. Therefore, the growth drivers were hurt a bit, especially consumer demand, which is 72% of the economy, as well as investments from large local corporates and SMEs. But as the economy slowly opens up once again, you'll see those drivers bouncing back.”

He expressed belief that the Philippines can stand out once again in the global stage, anchored on the country’s young population.

“The Philippines had 21 consecutive years of economic expansion, surpassed only by Australia. That is a testament to the resiliency and strength of the Philippine economy. While the growth drivers were hurt during the pandemic, the strengths of the Philippine economy remained intact. For instance, our young population is still there,” Ocampo stressed.

“In a pandemic, you could see the value of that young population in terms of adaptability to the digital economy, in terms of proficiency in the use of the internet. Later on, these young population, many of them would be creating their own companies and become entrepreneurs. Many jobs were lost during this pandemic. To cope, our young population would be creating their own companies.”