First of two parts
Our economy has plunged into its deepest contraction since 1981 as a result of a long series of lockdowns against the coronavirus, one of the strictest in Asia. Our GDP is down 16.5 percent from last year, prompting our economic managers to change their 2 percent to 3.4 percent estimates to a higher 5.5 percent rate of economic decline for this year. There is a prediction that the Philippine economy will experience one of the region’s slowest recoveries, mainly due to our failure to contain the spread of the virus and the continuing restrictions in movement. Add to these the fact that the administration’s stimulus package is inadequate for the needs of the country.
Compared to last year, consumer spending dropped 15.5 percent, industrial production declined by 22.9 percent, services by 15.8 percent, while government spending increased by 22.1 percent. We have a record-high unemployment rate and a steep decline in OFW remittances, which leads to a huge decrease in private consumption. Exports also suffered huge losses since March because the lockdowns affected production and supply operations.
An economist from Singapore’s Nomura Holdings, Euben Paracuelles, says that the recession should serve as a huge wake-up call to fiscal authorities that a support package needs to be urgently implemented, adding that its size must be comparable to those that we see in other countries. The amount of support that the Senate has proposed (P140 billion) is way less than what other Southeast Asian governments are providing. At the moment, our lawmakers are still talking about the country’s spending plan and the proposed corporate income tax cut that may support families and businesses that are being hit hard by the pandemic.
It would be difficult to further cut local policy rates at this time as the central bank has already slashed interest rates by a total of 175 basis points this year, to a record low of 2.25 percent. Economists say that support will have to be in the form of a lower reserve requirement ratio for banks to help the market become more liquid. Given these numbers, some people will wonder what BSP Governor Ben Diokno meant when he said that “the worst is behind us, but we are not out of the woods.”
In the meantime, the best thing the rest of us can do is to avoid panic and continue planning for our economic future. A financial advisor said it is better to ignore the headlines and to simply focus our energies on doing what needs to be done to survive this crisis. Recessions are always temporary, so we must take the opportunity to position ourselves such that we are in the best place for success when it is all over. Start planning is the sound advice because the steps we take now will eventually pay off.
(To be continued)