Government Spending is Key in Economic Recovery Amid COVID-19

Economic growth and activity have certainly slowed down as a result of the persisting COVID-19 pandemic. However, government spending is proving to be integral in keeping the economy rolling. Should the crisis continue, government spending will fast track economic recovery in the Philippines.

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Government Spending = Economic Recovery in the Philippines

According to Marikina (2^nd District) Rep. Stella Luz Quimbo, the government needs to spend even in the midst of a crisis. As an economist, Cong. Quimbo said that this is needed 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 the 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.

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

Economic Stimulus for the Filipino

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 bill. The ARISE Philippines Act was already approved by the Lower House.

The bill calls for the release of P1.3 trillion in economic stimulus package to jumpstart economic recovery. This will be realized within the next four years.

The law aims to offer various forms of assistance to micro, small, and medium enterprises and other sectors adversely affected by COVID-19. They target to generate around 1.5 million jobs through various infrastructure projects and financial assistance from 2020 to 2023.

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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 3^rd quarter. There is also a projected 6% contraction in the 4^th quarter to bring its full-year 2020 GDP projection to -8.3%.

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

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“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.”

He said that this is especially true in 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 adds.

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

About Market Sense

Market Sense is a monthly webinar series organized by the BDO Trust Group. The virtual event combines the latest economic and market developments in one enriched financial sessions.

They invite financial experts to give seasoned advice in order to help investors take control of their investments and grow their wealth.

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