As 2020 ends, many of my friends, students and colleagues ask me why is the Philippine economy performing worse than our Asean neighbors. This year, the IMF, ADB and the World Bank project a contraction of the Philippine economy by 7.3% to 9.9%. These were estimates even before three consecutive typhoons hit the country during this last quarter. Our Eaglewatch forecast, which already factored in the typhoons, is a negative 10% for the whole year. This performance definitely will lag behind Singapore, Indonesia, Thailand, Malaysia and Vietnam. Vietnam’s economy will for sure have a positive growth rate for the whole year. The countries’ GDP growth performance as of the third quarter is given below:
Country | 1Q | 2Q | 3Q |
Philippines | – 0.7 | -16.9 | -11.5 |
Indonesia | 2.97 | -5.32 | -3.49 |
Malaysia | 0.7 | -17.1 | -2.7 |
Singapore | -0.3 | -13.3 | -7.0 |
Thailand | -1.8 | -12.2 | -6.4 |
Vietnam | 2.68 | 0.39 | 2.62 |
So why are we falling behind our neighbors?
First, they have fared better in managing the virus. Third party observers have ranked the Philippines in the lowest tier among many countries in relation to various indicators for containing the spread of Covid-19. Bloomberg ranked the Philippines # 43 among 56 countries in terms of what they called “Covid Resiliency”. Indonesia, which has more infected cases and deaths than the Philippines, even outranked us because of better preparation in the access to vaccines. The Economist and Oxford Economics, meanwhile, ranked the Philippines among other economies as the country that is most vulnerable to the long-term effects of the pandemic. India has even outperformed us even with its massive number of cases and deaths. While both the number of cases and deaths in the Philippines have been gradually declining, there are still lingering issues related to contact tracing, in establishing effective health protocols in transportation and workplaces and in the variation on how local governments are controlling the virus.
Second, confidence among consumers and businesses has remained low. The Bangko Sentral ng Pilipinas survey indices for both showed -54.5 and -5.3, respectively, for the third quarter of this year. Pulse Asia in its mid-September 2020 Survey, notes that 97% of Filipinos express concern about getting sick due to the novel coronavirus that causes Covid-19 and 84% are very much worried about contracting Covid-19. SWS in its September 17-20, 2020 National Mobile Phone Survey revealed that 77% of adult Filipinos consider it risky to go to the market and that 65% of those with jobs consider it risky to go to their place of work. Both the Google Community and Apple Mobility data show that the Philippines has only gradually improved from a baseline marked in January and February before the quarantines and lockdowns occurred. The country has not shown much improvement particularly in locations for public transport and in workplaces. Again, this is in relation to our policies in terms of transporting workers to their work areas and in establishing and supporting health protocols within companies and firms. Worse, the mobility indicators of our Asean neighbors particularly Vietnam, Thailand, Singapore and even Indonesia improved considerably.
Third, the Philippines has one of the smallest amount in terms of stimulus package among the key Asean countries. Bayanihan 1 and 2 have provided more than half a trillion pesos ($10 billion). However, in the statistics provided by the Singapore Institute for International Affairs, this is still low as compared to those of Thailand (around $75 billion), Malaysia (around $60 billion), Singapore (around $40 billion), Indonesia (around $30 billion) and Vietnam (around $20 billion). Our economic managers argue that the amount of spending does not necessarily correlate to increased GDP growth and that the country needs to handle its deficit well since this pandemic might span for a longer duration. However, many economists think otherwise, as it is important to act immediately particularly in critically supporting businesses not only with loans but with subsidies as well. It is also true that the amount of the stimulus is also as important where the money actually goes and whether the allocated budget is actually spent and given to the sectors that need it most.
The Philippine government forecasts that GDP growth will expand and recover in 2021 by 6.5-7.5%. This can be realized if confidence is brought back to businesses and consumers. This will require better management of the virus and with higher government spending targeted towards the key sectors who need them most. We, in Eaglewatch, however, see that the economy will only be gradually recovering with growth of about 4% to 4.5% as it is unlikely that the reasons cited above will be fully resolved immediately. Without the vaccine and/or herd immunity, the threat of Covid-19 requires a balancing act between improving confidence and securing health. Our growth story for 2021 and beyond depends on how well we tread this tightrope.