LOCAL economists and analysts are not optimistic about the country’s economic outlook given the extent of the Covid-19 pandemic.
The National Economic and Development Authority (Neda) said this crisis would likely cut the country’s economic growth—measured by gross domestic product, or GDP—by 0.5 point to 1 percentage point. This means if the government targets a growth of 6.5 percent to 7.5 percent, such growth would be reduced to as low as 5.5 percent, significantly lower than the 6.3-percent average in the past decade.
Economists see the virus eating away whatever gains the economy has had in the past decade. Some are even talking about the dreaded “R” word—recession, or what the Philippines and the rest of the world went through during the global economic crisis of 2009.
That year, Philippine GDP grew 1.1 percent. In the first quarter of 2009, the economy posted a growth of 1 percent; in the second quarter, 1.6 percent; third quarter, 0.5 percent; and only 1.4 percent in the fourth quarter.
This time around, economists like Ateneo Center for Economic Research and Development (ACERD) Director Alvin P. Ang said the growth, particularly in the first and second quarters of the year would be, “at best, flat.”
The January-to-June period is expected to be challenging given the slowdown in consumption caused by the community quarantine and, later, enhanced community quarantine.
Major threat
ING Senior Economist Nicholas Antonio T. Mapa said with the enhanced community quarantine covering the entire of Luzon, this measure has effectively “grounded” economic activity on the island. This is a major threat to economic growth given the contribution of Luzon to GDP, Mapa noted.
Data from the Philippine Statistics Authority (PSA), cited by Unionbank Chief Economist Ruben Carlo O. Asuncion, showed that based on the percent distribution of the 2019 GDP, the National Capital Region (NCR) or Metro Manila accounted for 36 percent of GDP, the largest share, followed by Calabarzon with 17 percent and Central Luzon, 9.8 percent.
Other regions in Luzon paled in comparison to the respective contributions of these three regions as they accounted for 62.8 percent of GDP last year. However, with the combined contribution of 10.2 percent, this brings up the total contribution of Luzon to GDP to 73 percent.
Further, the enhanced community quarantine has forced many firms to operate with a skeletal workforce. Mapa said this only means a “skeletal output.”
As a result of the enhanced community quarantine, many workers have found it difficult to even show up for work due to the lack of transport services which got suspended due to the lockdown. Many workers, including health workers, were forced to walk to wherever they were stationed. Others, especially daily wage earners, had to hitchhike just to go to work to avoid forfeiting their pay for the day.
Affected more
IT can be noted that output or production is crucial for GDP since it is a measure of production. With this, Mapa said, ING expects first-quarter growth to slow to 4.8 percent.
The first quarter, however, doesn’t worry Luis F. Dumlao, dean of the Ateneo de Manila University John Gokongwei School of Management.
Dumlao told the BusinessMirror he isn’t losing sleep over the first quarter given that January and February were still “relatively normal.” He said it was not until the second week of March when the Covid-19 crisis really hit.
With this, Dumlao said that first-quarter GDP growth could average 5 percent but second-quarter GDP would be “close to zero if not negative.”
“The second-quarter GDP growth will be the one that will be affected more. In the first two weeks of April, we can see a close to zero if not negative growth. The rest of the second quarter can go either way depending on non-economic factors—e.g., our health, the spread of disease, etc.,” Dumlao told the BusinessMirror via e-mail as government ordered public vehicles off the road.
Costly tack
Apart from the impact on GDP, Dumlao said employment could also be significantly affected. The April numbers to be collected by the PSA would reveal a grim picture unlike the January 2020 data.
This, despite the Neda saying that, through the course of the pandemic, it expects around 30,000 jobs to 60,000 jobs could be lost.
Based on the Labor Force Survey (LFS) for January, the country’s jobless rate remained unchanged at 5.3 percent versus January 2019. Underemployment even improved to 14.8 percent from 15.4 percent in January 2019.
“The next is in April and it will definitely increase,” Dumlao said. “We just know that every 450,000 lost jobs will result in a 1-percent increase in unemployment rate.”
University of Asia and the Pacific School of Economics Dean Cid L. Terosa told the BusinessMirror via SMS that with Covid-19 cutting full-year GDP by 0.6 points to 1 percentage points, this could lead to the inability of the economy to create 300,000 to 500,000 jobs.
Reduced demand
With the employment sterility, Terosa said the economy wouldn’t be able to produce P500 billion to P850 billion worth of goods and services.
“The possibility of a global recession has never been as certain as it is now,” Terosa said.
If jobs are lost and/or not created, De La Salle University economist Maria Ella C. Oplas said this will impact on workers’ ability to buy their food and non-food needs.
This will ultimately cause deflation, which indicates that there is no demand for various goods and commodities, Oplas explained.
Based on PSA data, food and non-alcoholic beverages have a 38.34-percent weight in the Consumer Price Index (CPI) with food accounting for 35.46 percent of the weight. In terms of non-food essentials, it accounts for 60.08 percent of the CPI, with housing, water, electricity, gas and other fuels accounting for 22.04 percent.
For the poorest 30 percent of the population, the CPI weights are reversed with food and non-alcoholic beverages accounting for 58.27 percent, with food accounting for 55.04 percent. Non-food essentials only have a weight of 39.27 percent of the CPI.
“It will continue to be down as demand for goods is down. [This will create a] domino effect,” Oplas said. “People don’t have work, they don’t get to buy their necessities [in turn] companies won’t produce because there is no demand.”
OFW remittances
Asuncion said apart from jobs, another factor threatening consumption is a decline in overseas Filipino worker (OFW) remittances. He expressed concern that many OFWs are located in countries that are affected by Covid-19.
Citing data from the Bangko Sentral ng Pilipinas (BSP), Asuncion said countries with Covid-19 account for 49.3 percent of the remittances sent by OFWs. The US accounts for the largest share at 37.6 percent followed by the United Kingdom with 5.2 percent; Germany, 2.5 percent; South Korea, 2.3 percent; and Italy, 0.7 percent.
Data from the World Health Organization (WHO) as of March 17 showed the US has 3,503 cases and 58 deaths; the UK has 1,547 cases and 55 deaths; Germany, 6,012 cases and 13 deaths; South Korea, 8,320 cases and 81 deaths; and Italy, now considered the epicenter of Covid-19, about 27,980 cases and 2,503 deaths.
“Countries with the highest number of confirmed Covid-19 infection cases, where contributions come, constitute a total of almost 50 percent of remittance inflows. This is a significant portion of overall levels and future remittance inflows may be affected consequently for the coming months,” Asuncion said. “Moreover, it is important to note that approximately 22 percent of total remittances are classified under sea-based workers.”
Containing Covid-19
Oplas believes now is the time to prime the economy. This is particularly important when it comes to food security.
“What if people outside Metro Manila decide to keep food they produced for their own consumption? [This means] no more food supplies will enter Metro Manila,” Oplas said.
She added that government should use its funds to buy medical supplies and provide credit for micro, small, and medium enterprises to allow them to sustain their operations. Public money should also be used to extend loans for individuals who are in need and buy food to sell at lower prices for households in Metro Manila.
Oplas said the government must also ensure there is always good internet connection; local governments sanitize their areas; and electricity is supplied.
“This is the time for government to give back our hard-earned money back through government expenditure,” Oplas said.
On March 16, the President’s economic team announced the government would release P27.1 billion in a stimulus package to contain the spread of Covid-19.
Largest chunk
The largest chunk of the stimulus package is P14 billion for programs and projects of the Department of Tourism (DOT) amounting to P14 billion from the Tourism Infrastructure and Enterprise Zone Authority (Tieza) to support the tourism industry.
The smallest allocation was P1 billion for the Department of Trade and Industry (DTI) for the microfinancing special loan package of the Small Business Corp. (SBC) set aside for affected micro entrepreneurs/micro, small and medium enterprises (MSMEs) and other assistance. (See the full BusinessMirror story here: https://businessmirror.com.ph/2020/03/16/government-announces-p27-1-billion-stimulus-package-to-fight-covid-19/)
This stimulus is nowhere near the stimulus package released by the Arroyo administration at the height of the global economic crisis in 2009. In that year, the government allocated a P300-billion economic resiliency plan to prime the economy.
Then Socioeconomic Planning Secretary Ralph G. Recto said the stimulus included a private-sector stimulus of P20 billion through the reduction of corporate income tax to 30 percent from 35 percent, and P20 billion through higher income tax exemptions to spur domestic consumption.
The Arroyo stimulus prevented that year a contraction of the economy, one of the few markets to do so in Southeast Asia.
Upping the ante
ECONOMISTS agree that the Duterte administration’s stimulus package is not enough to respond to the crisis at hand.
“Between the first and second quarters of 2019, the GDP averaged P4.4 trillion. This makes P27.1 billion worth 0.6 percent of a quarter of a year’s GDP,” Dumlao said. “It [P27.1-billion stimulus package] might not be enough.”
Terosa said the stimulus package will amount to about P40 billion to P55 billion when its multiplier effects are considered. While the multiplier effects are significant, these still pale in comparison to the P90 billion to P185 billion losses in the tourism sector alone, for example.
The stimulus package, Terosa said, may create 15,000 jobs to 17,000 jobs but this is significantly lower than the 30,000 jobs to 50,000 jobs the economy will lose due to the crisis.
“But then again, it’s better than no stimulus package at all,” he said.
Mapa said the government has another option and that is to act on House Bill 6606 filed by Marikina 2nd District Representative Stella Luz A. Quimbo that proposes a P108-billion stimulus package.
The package includes P43 billion for assistance and promotion of the tourism sector, P15 billion for unemployment assistance, and P50 billion for assistance for business, particularly MSMEs, which includes loan packages and subsidies. [See full BusinessMirror story here: https://businessmirror.com.ph/2020/03/12/solon-files-p108-billion-fiscal-stimulus-package-for-covid-affected-sectors/]
“Funds will be needed to get the economy back on its feet and the current stimulus package may not be enough to even put a dent in the fallout from Covid-19,” Mapa said.
Stimulus-plus
ATENEO de Manila University School of Government Dean Ronald U. Mendoza said there is also a need for government to consider policy changes.
Mendoza lamented in a public Facebook post that the government’s decision to not extend the deadline for paying taxes exacerbates the situation.
“Our workers are anxious, and our firms are hurting. Handling this virus is a test for our society and our economy—if we make good decisions informed by science and strengthening social cohesion then we will come out of this with demonstrated resilience. Bad decisions can scupper the economy and create an even bigger crisis than the virus itself. Countercyclical policy is necessary to protect jobs, sustain businesses, and keep the economy going,” Mendoza said.
Apart from government stimulus, Ang said there is a need to consider collective action that could be done by the private sector.
Ang said while it is good that private-sector firms are helping their employees, it is important for collective action of adopting a “China-style of mobilizing” to ensure these actions will impact on a larger share of the population.
“Use [the] China-style of mobilizing all TNVS [Transportation Network Vehicle Service] and public transport for exclusive use of food, essential delivery, and personnel transport at the expense of government,” Ang said.
Another economist who requested anonymity said the earnings of the Top 30 private firms alone are sufficient to support the economy.
Indeed, if these firms would just pool together P1 billion each, that would amount to P30 billion additional funds that could be used to shoulder at least the needs of nurses, doctors, and other health workers in the frontlines for personal protective equipment.
Time and tide
TEROSA and Ang said given the situation, this is not the time to be fixated with economic growth or even numbers. Ang said going beyond the deficit and frontloading expenses are needed to not only keep the economy humming but also to fight the virus.
What is important to remember, Ang said, is that the economy’s recovery depends on how well the country fights the virus. He said measures should be undertaken to ensure that the economy is still intact after the crisis and that recovery will not be U-shaped, which could take longer.
What is generally preferred is a V-shaped recovery which is characterized by a steep decline in growth followed by a sharp increase in growth.
“If the government can successfully lower or contain contamination, it can more forcefully focus on related issues. Unless economic activity cannot show a semblance of normality because of the spread of the disease, all other issues have to be temporarily put aside first to focus on the herculean task of containing the spread of the virus,” Terosa said. “Wage war against the virus first and win the economic battle later.”
Ensuring protection
ECONOMIST and BusinessMirror columnist Rene E. Ofreneo said it is also high time for the country to think beyond Covid-19.
Ofreneo said the pandemic is already the third disruption the manufacturing sector experienced this year. He cited the first two as the US-China trade war and the automation of production.
Ofreneo said there is a serious need for structural change particularly to ensure that millions of Filipinos continue to hold their jobs and for the economy to be less dependent on external factors.
He added that what must also be changed is the economy’s reliance on OFW remittances as well as business-process outsourcing firms, particularly Philippine Offshore Gaming Operators, or Pogos, which have also been significantly affected by Covid-19 and the other two disruptions.
For one, Ofreneo said giving a stimulus package of P2 billion to the Department of Labor and Employment (DOLE) for social protection programs for vulnerable workers is good but not enough, given that the labor department can only reach formal workers. Many of these workers, he added, are part of unions who have Collective Bargaining Agreements (CBAs) to protect them during times of crises.
Reviewing goals
MAJORITY of the victims of this crisis, Ofreneo said, are informal workers who depend on their daily earnings to eat. This includes tricycle drivers, street vendors, vegetable sellers, informal settlers and even drivers operating within the TNVS system. These workers comprise the bulk of the country’s workforce, Ofreneo said.
“It’s okay for DOLE to provide assistance but what should be examined closely is the assistance for all sectors. [The government should ensure] that no one is left behind or left hungry,” Ofreneo said.
“[The] Neda should stop saying that the Philippines will become an upper middle-income class country [given the current situation]. That’s not the target we want,” he added. “We want a stable society with a stable economy for all.”
In order to address this seeming imbalance, Ofreneo said measures should be undertaken, such as for the President to keep his promise of lifting importation to ensure the welfare of two million farmers.
Ofreneo said this is just one concrete example.
But he said more needs to be done because the government needs to “do everything” to preserve incomes of Filipinos and ensure jobs for the poor, especially in times of crises.
Image credits: AP/Aaron Favila, Bernard Testa