THE Philippine economy is already poised for a recession as the National Economic and Development Authority (Neda) estimates GDP could contract 0.6 percent this year.
Based on the Neda’s initial estimates, the economy could slow to a growth of 4.3 percent to a contraction of 0.6 percent. The estimate was made based on the initial days of the lockdown.
Neda Undersecretary for Policy and Planning Rosemarie G. Edillon told the BusinessMirror on Tuesday that the estimates could still change. For one, at the time the estimates were made, there were only 271 coronavirus 2019 (Covid-19) cases when there are already, as of Tuesday, 501 confirmed cases.
“[Will the Philippines enter into a recession?], possibly. We’re working [and hoping] for a positive growth still but the situation is really very fluid,” Edillon told this newspaper. “If we do get into a recession, it will not be because we did not do mitigating measures.”
The last time GDP contracted was in 1998 and 1991 when full-year GDP both contracted 0.6 percent. Prior to those years, the last time GDP contracted was in 1984 and 1985 at 7.3 percent.
In 1998 there was a severe El Niño and the tailend of the Asian Financial Crisis. In 1991 the economy suffered from the residual effects of the July 1990 earthquake and Mount Pinatubo’s eruption in June 1991.
The years 1984 and 1985 were the last two years of the Marcos administration. A few months after the end of 1985, in February 1986, the country had the world’s first bloodless revolution and saw a change in administration.
“It also bears emphasizing that attaining the upper bound of 4.3-percent growth rate for 2020 is possible only if we are able to stem the impact of Covid-19 and the enhanced community quarantine to the rest of the economy,” Neda said in its report.
“By extension, if the ECQ is extended beyond one month, or if the spread of Covid-19 is unabated even after the ECQ, then even the low end of the estimate is still too high,” it added.
Based on the Neda’s estimates, given the simultaneous adverse effects on the supply and the demand side of the economy, they expect a cumulative loss of P428.7 billion to P1.36 trillion in gross value added using current prices. This is equivalent to 2.1 percent to 6.6 percent of nominal GDP in 2020.
The bulk of the impact is due to the Luzon-enhanced community quarantine—P298 billion to P1.09 trillion, or 1.5-5.3 percent of GDP—and affects 61,000 to a million Filipinos.
This is followed by losses in the transport and tourism sector worth P77.5 billion—P156.9 billion or 0.4 percent to 0.8 percent of GDP, and affecting 33,800 to 56,600 Filipinos in the sector.
The list includes consumption losses worth P45.1 billion—P93.6 billion or 0.2-0.5 percent of GDP, and affects 16,500-62,500 Filipinos in the sector.
Exports and remittances will also be affected with losses reaching P4.9 billion to P9.8 billion or 0.02-0.05 percent of GDP; and P3.9 billion-8.5 billion or 0.02-0.04 percent of GDP, respectively.
In terms of exports, Neda estimates around 3,000 to 6,700 Filipinos will be affected while in remittances, 1,700 to 4,500 Filipinos.
“To reiterate, the estimates assume that the adverse impact will be felt until June, though the brunt will be felt during the one-month ECQ. External trade, however, is expected to recover beginning March, though it will still be affected by the ECQ,” the Neda said.
Mitigating measures
Neda said well-coordinated measures guided by a comprehensive plan are crucial to contain the spread of Covid-19 and to mitigate its social and economic impact.
To mitigate the social and economic impact of the Covid-19 pandemic, Neda has proposed a three-phased program of interventions.
This is composed of Phase 1a or the clinical/medical response; Phase 1b, public-health response; Phase 1c, short-term augmentation of health systems capacity; Phase 2, rebuild consumer and business confidence; and Phase 3, resume a new normal state of economic activity that is more prepared for another possible pandemic.
“This public-health emergency brought about by Covid-19 shows us how crucial it is for us to have a whole-of-government and whole-of-society approach in addressing this challenge,” Socioeconomic Planning Secretary Ernesto M. Pernia said in a statement.
“The response measures should delicately balance the health and economic objectives, particularly as the impact varies by economic class. Otherwise, the situation could deteriorate to a social and political crisis,” he added.
Once the ECQ is lifted, the Neda said reduced economic activity is still expected as the public becomes hesitant to engage.
During this time, the government must assure the public of the adequacy of the country’s improved health systems, which is under Phase 2 of the proposed program on interventions.
Redefining the new normal state of economic activity under Phase 3 includes recalibrating development plans and work programs to conform to the new normal.
For its part, the Neda will begin its preparations for Phase 3 by conducting various scenario and foresight planning exercises involving multiple stakeholders, including experts and development partners.