* Q1 GDP shrinks 0.2% vs prev quarter's +6.7%
* Economists expect steeper drop on Q2 growth
* Unexpected Q1 contraction reinforces case for more
stimulus
(Adds comments from c.bank governor)
By Karen Lema and Neil Jerome Morales
MANILA, May 7 (Reuters) - Strict quarantine measures to
contain the coronavirus slammed the brakes on the Philippines'
two decades of uninterrupted growth in the first quarter,
hurtling the economy towards a recession this year.
Gross domestic product unexpectedly shrank 0.2% in January
to March from the same period last year, the first decline since
the fourth quarter of 1998, data from the statistics agency
showed on Thursday.
The contraction dashed forecasts for 3.1% growth and
economists now believe GDP will see a steeper drop ahead as an
extended lockdown in the capital takes a heavier toll on
domestic demand.
"First-quarter slump is the tip of the iceberg," said Alex
Holmes, Asia Economist at Capital Economics, in a note. "The
second-quarter figures are likely to be much worse".
Seasonally adjusted GDP fell 5.1% versus fourth-quarter
2019.
The Philippines placed the main island of Luzon, which
accounts for more than two thirds of the economy and half of the
population of more than 107 million, on lockdown from mid-March
until the end of April.
The enhanced community quarantine (ECQ) measures, among the
strictest in Asia, was relaxed from May 1, paving the way for
incremental resumption of work and commercial activity in
low-risk areas. However, Manila, where most cases are, remains
under strict stay-at-home orders.
Household consumption slowed to 0.2% in the first quarter
from last year, its weakest in at least two decades and down
sharply from the fourth quarter's 5.7%.
Government spending also grew at a much slower pace of 7.1%
in the first three months of the year from a year earlier,
compared with 17% in the final three months of 2019.
Capital formation fell a hefty 18.3% after posting 2.5%
growth in the fourth quarter.
"Containing the spread of the virus and saving hundreds of
thousands of lives through the imposition of ECQ has come at a
great cost to the Philippine economy," Acting Economic Planning
Secretary Karl Chua told an online news conference.
The Philippines recorded its first local transmission of the
virus in March and has since registered more than 10,000
confirmed cases and more than 600 deaths.
To support growth, the Bangko Sentral ng Pilipinas (BSP) has
cut interest rates three times this year, with the latest move
in April an off-cycle easing that brought the benchmark interest
rate PHCBIR=ECI to a record low of 2.75%.
BSP Governor Benjamin Diokno signalled he was in no hurry to
slash policy rates again, saying the cumulative 125 basis point
cut in interest rates so far this year was "appropriate to
buffer the country's growth momentum and boost market confidence
amid stronger headwinds".
"It is time to pause, monitor and evaluate what's
happening," Diokno said in a news conference streamed online.
Diokno said he expects the economy to bounce back strongly
in the fourth quarter on the assumption the pandemic will be
contained in the second half.
($1 = 50.5210 Philippine pesos)
(Additional Reporting by Enrico dela Cruz; Editing by Sam
Holmes and Nick Macfie)