The Asian Development Bank (ADB) released their updated forecast of the Philippine economy for 2021 on April 28. They cut their earlier forecast of a 6.5 percent in December 2020 to 4.5 percent. It was said that this forecast is a floor, meaning this is the lowest and it could be higher. They cited that the reimposition of stricter quarantines has caused them to adjust their forecasts downward, particularly in the first half of 2021. This forecast is much lower than the government target of 6.5 percent to 7.5 percent growth. Our own estimates at ACERD last January was already at the lowest range among those gathered by Consensus Economics at 2.9 percent. Taking into consideration the reimposition of restrictions, it would definitely be lower since the affected areas effectively represent more than half of the economy’s source of output.
Getting good growth is desirable indeed especially after encountering the worst economic downturn after the second world war. However, we should also be realistic on how growth can be re-established and sustained over the medium term. Economists from the World Bank in November 2020 presented three key elements on how economies can restart sustained growth. These are: health care system prioritization, formalization of the economy and global recovery. Health care system prioritization is essentially the capacity to respond to the pandemic and the underlying health conditions of the population. It is the combination of human, physical and financial resources that should be flexible and not reactive. Formalization of the economy refers primarily to the structure of the economy pre-pandemic. The ability of the economy to adopt and use the digitalization process and how large is the informality of the economy impinges heavily on the response mechanism to restart the economy. Finally, global recovery refers to the interconnection of the economy to the global value chain. Presently, the country is 40 percent dependent on external activities. The immediate and sustained recovery of our major trade partners could make a major impact on our internal recovery as well.
These elements affect the economy at the same time and play critical roles on how growth can be restarted and sustained. They cannot also be addressed independently of one another as they interrelatedly impact one another. Above all, they are dependent on the behavioral patterns of consumers, firms and government on the protocols and processes that are being set in place. For instance, the calibration of quarantine restrictions can be fully maximized if the three elements are carefully prepared to respond and not to react. Hospital systems are not a matter of physical capacities but primarily of health care professionals. Providing stimulus can be efficient and effective if they are electronically given. Exports and import orders may be increasing as China and Vietnam’s manufacturing capacities expand.
Our collective capacities must be able to calibrate these elements as we calibrate the quarantine restrictions. Otherwise, we will just fall into the cycle of loosening and restricting. Note that countries that have largely been successful in minimizing the number of cases during the early part of the pandemic are now also facing surges. It is becoming clear that the virus plays into our behavioral desire to return to the normal way of life pre-pandemic. It may be necessary therefore to break the mindset of everyone to think that this new normal is the new normal. After the pandemic, many things will no longer go back to where they were before. ADB mentioned this as well in their report that many jobs are permanently lost. The World Bank earlier said that 20 percent of those who lost their jobs due to the pandemic may no longer get them back.
What these information are telling us is that we should not be worried that much about growth. Our focus should be on how our economy is able to calibrate quickly and efficiently these elements into our new growth path. The structural change they have created will be the defining factor whether we can do a sustainable restart of the economy after this second surge. A growth that is not sustainable, however high, is not preferred over a slower but sustainable one. We should avoid going back to a contraction once growth resumes.
Whatever we are doing today to improve our response must be holistic and looks at the medium term. Expanding a flexible health care capacity together with an effective vaccine roll out should be done efficiently. The roll out of the national ID registration is now online and can help improve formalization. This should be mapped out intelligently into a single database that can be used for any government service such as election, tax, business, licensing and financing. The inclusive innovation industrial strategy (i3S) of the Department of Trade and Industry should be made easily adaptable to firms and industries as this directly responds to the structural change brought by the pandemic. These initiatives must harmonize and coordinate well and then we can look forward to an economic restart that will not regress.