GDP declines by 0.2 percent in the first quarter of 2020; the first contraction since fourth quarter of 1998
The country’s economic output, as measured by gross domestic product (GDP) contracted by 0.2 percent. National Economic and Development Authority acting director general Karl Chua attributed this to “significant socio-economic risks and shocks during the first quarter of 2020”, including the Taal volcano eruption; decline in tourism and trade starting in February due to the COVID-19 pandemic; and the need to implement the enhanced community quarantine (ECQ) in Luzon and other parts of the country in March. This is the first contraction of the Philippine GD since the fourth quarter of 1998.
Earlier, Colliers noted that the economic growth potential for 2020 will be clipped by the impact of COVID-19. The last time the Philippine economy contracted, in 1998, office lease rates dropped by 16 percent while average condominium prices plunged by 14 percent before recovering in 2000. In terms of its impact on the Philippine property, the pandemic is probably worse than the Global Financial Crisis in 2008-2009 but not as bad as the Asian Financial Crisis during the late 1990’s as the financial system is strong and interest rates are as low as they have ever been. In our opinion, a coordinated fiscal policy and monetary response from the Philippine government and central bank is likely to instill confidence in the country’s economy including the property.
OFWs in essential jobs seen mitigating remittance drop
Finance Undersecretary Gil Betran cited the central bank or Bangko Sentral ng Pilipinas’ (BSP) estimate of a 2% to 3% decline in Overseas Filipino Workers’ (OFW) remittances for 2020 due to the pandemic. This is lower than the World Bank’s estimated drop in remittances received by low- and middle-income countries (LMICs) in East Asia and the Pacific. ING Bank Philippines Senior Economist Nicholas Antonio Mapa also expects a drop in remittances for 2020, given the likely decrease in income of OFWs due to the shutdown of selected businesses caused by the lockdowns in various countries.
The projected drop in OFW remittances will likely affect residential and retail demand. Anecdotally, OFW remittances drive the demand for Affordable and Mid-Income condominium projects, or those priced between PHP1.7 million to PHP5.9 million per unit. Economic analysts are expecting a USD3 billion to USD6 billion drop in remittances in 2020 and this could soften demand for condominium and horizontal projects. Studies citing data from the Asian Development Bank, Philippine central bank, and consumer research firms note that more than 90% of remittances received by Filipino households are spent on basic needs such as food, fueling retail consumption. A number of economic analysts have revised downward their remittance forecast for 2020. This is likely to erode consumer purchasing power and confidence.
Gig economy sees tremendous growth
A Lenovo study noted that the Philippines’ freelancer market is projected to significantly grow this year. The study noted that the pandemic has been compelling firms to implement work-from-home (WFH) arrangements. The Telecommuting Act is also likely to encourage firms and employees to embrace a WFH set up. Meanwhile, Payoneer’s 2019 Global Gig-Economy Index ranked the Philippines as sixth in the world and the fastest growing market for the gig industry. Payoneer also noted that the country recorded a 35% YoY growth in freelance earnings.
Colliers believes that the Philippines’ rising competitiveness as a gig economy is likely to rise demand for flexible workspaces. Aside from micro, small, and medium businesses, the growing share of millennials and Gen Z employees to the country’s workforce is also expected to chip in to co-working space demand. We are likely to see a rise in demand for flexible workspaces in the near term as businesses implement split operations. Going forward, we are likely to see these workspaces implementing social distancing measures, resulting in greater flexible workspace allotted per client. We also see operators in the Philippines providing better technology as well as improving meeting experience to clients as they aim to differentiate