Building confidence is necessary for our economic recovery

IT is our belief at the Ateneo Center for Economic Research and Development (ACERD) that ending or easing lockdowns and quarantines alone will not restore confidence or growth. It is only when Covid-19 is under control will economic growth resume. Uncertainty due to this pandemic and related health risks has made many individuals, households, and businesses alter their behavior from their normal ways even without formal restrictions from government. Eradicating such uncertainty is key in building confidence for growth to resume. Countries that were able to bring back the confidence of firms and consumers have seen economic activities return or begin to return to their pre-pandemic levels. For every delay in getting the virus contained, economic recovery to pre-crisis levels could also be delayed.

One important measure of confidence is the behavior of the citizens in terms of their movement going to public spaces, transit stations and workplaces. Google with its vast user data has provided the public with community mobility data for many countries of the world. What is seen in the table below are numbers compared to a baseline day which is the median value from the 5‑week period January 3 to February 6, 2020. The Philippine mobility data has improved gradually from March 29 to September 11 as seen on the table below.

However, if we compare the Philippine data with that of its Asean neighbors, the country is lagging behind (see the following table).  Vietnam’s mobility traffic to retail and recreation, grocery and pharmacy has gone even higher than the baseline. The same is true with Thailand. It is not surprising then that these two countries have also performed better in terms of GDP growth rate in the past two quarters. And this also means that we have to improve our health protocols in public transportation and in work stations so that people feel safe to go outside of their homes. These are the locations where the improvement in mobility have been rather slow, from -82 percent to -61 percent for transit stations and -54 percent to -43percent in workplaces. In terms of the services sector, recovery can only be felt if mobility returns to near the baseline for retail & recreation and grocery and pharmacy—which is zero percent (see table above).

The government has recently launched “Recalibrated Economic Recovery Program” or RECHARGE. The key trust of this intiative is to intensify the information and education campaign and implementation of the Prevent, Detect, Isolate, Treat and Reintegration strategy. It also seeks the help of the “whole of society” to undertake this strategy. We think this is a critical component in building the confidence of businesses, consumers and workers to go back to their respective economic endeavors. It is imperative that the government provides this framework because confidence will only be back if the following indicators (as aptly enumerated mostly by Mckinsey and Company) are positively observed:

• new case counts are low.

• widespread testing for official counts to represent accurately actual conditions.

• adequate number of facilities and health personnel to isolate confirmed cases.

• number of serious cases requiring hospitalization are effectively handled by the health system.

• effective, credible and consistent communication about health interventions by leaders such that the public and private sectors can plan accordingly.

• public-health measures delivered effectively and sufficient to prevent increases in transmission, including the necessary health protocols in public transportation, workplaces and other important establishments.

• public-health interventions, including those for high-risk and vulnerable populations, do not structurally prevent economic recovery.

Even if there is adequate fiscal stimulus for assistance to firms, entrepreneurs, workers and poor households, without the confidence built among them, no economic recovery program will succeed. Firms will not borrow from government financial institutions because they are not assured that their market will return. Workers will not be willing to commute if their safety will be compromised. They will not report to their factories if health protocols are not in place. Consumers will not go to restaurants or malls if the proper regulations on social distancing are not being implemented in these places. Their confidence to do what they need to do must be there.

For sure, we still have a lot to do and indeed everyone has a stake in this journey to economic recovery.

The author is the Dean and Professor of Economics, School of Social Sciences at the Ateneo de Manila University.

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