"We have been dealt an enormous blow by the COVID-19 crisis"
"We have been dealt an enormous blow by the COVID-19 crisis"
In economics school, students are taught how to go about calculating changes in an economy’s output. Since the end of World War II, Philippine economists have had to apply their calculation skills in a major downward direction on only four occasions. One of those occasions, obviously is the downturn currently being experienced by this country’s economy. The other occasions were the economic crises of 1949-1950, 1969-1970 and 1983-1984.
The current downturn is unquestionably the most severe of the four. The severity of the current downturn was assured by the placement of Luzon – the source of approximately 45 percent of this country’s GDP (gross domestic product) – under either total or partial lockdown and the total ban on incoming and outgoing international airline flights. The economy of the nation’s largest island has been moving in the direction of free fall since March 15, when the lockdown went into effect. Especially damaging to Philippine GDP has been the loss of virtually the entire output of Metro Manila, which accounts for an estimated 20 percent of the national total.
Calculation of the impact of various phenomena on economics is rendered more accurate by the specialized field of econometrics, which introduces mathematical concepts into economic analysis. But even without resort to econometrics, it is possible to (1) determine which parts of the Philippine economy have suffered the greatest damage from the coronavirus pandemic and (2) on the basis of the damaged sectors’ individual contributions thereto, calculate the overall reduction experienced by this country’s GDP. Estimates of the negative growth in 2020 range from the 2.0-3.5 percent of a number of domestic banks to the 5.1 percent of a foreign investment advisory firm.
Four sectors stand out among the sectors of the economy that have been badly hit by the COVID-19 downturn. These are tourism, services, manufacturing and retailing. The severity of the downturn becomes understandable when it is realized that these sectors are four of the largest contributors to Philippine GDP.
The international component of Philippine tourism has been clobbered by the lethal combination of the ban on international flights and the Luzon-wide lockdown. Reservations have gone down to practically nil and hotel and resort occupancy rates have declined precipitously. The smaller hospitality establishments are close to shutting down permanently. Tourism accounts for approximately 15 percent of this country’s GDP.
The services sector, which has become the Philippine economy’s largest sector – close to 40 percent of GDP – has likewise been clobbered by the current crisis. Only the BPO (business process outsourcing) sub-sector has gone unscathed. Restaurants, entertainment and recreation establishments and businesses providing all sorts of personal services have been hit very hard by the COVID-19 crisis. A massive loss of revenues, jobs and incomes has been the result.
The manufacturing sector, which has been accounting for around 21 percent of Philippine GDP, has been brought to a virtual standstill by the Luzon-wide lockdown. Only manufacturing industries categorized as essential – mainly food and health-related products – have been allowed to operate during the lockdown. The output of a steadily shrinking segment of the economy was further reduced by the lockdown. The inclusion of public transport in the lockdown rendered difficult the operation of the permitted manufacturing industries.
The retailing sector has likewise taken a big hit from the current crisis. The temporary closure of establishments selling all sorts of non-essential goods – from the giant malls to the small neighborhood stores – has meant the loss of hundreds of thousands of jobs and family incomes across the land. The socioeconomic character of this adverse development becomes evident when citation is made of the fact that an estimated 96 percent of all business enterprises in this country are MSMEs (micro, small and medium-sized enterprises).
This brings me back to the matter of calculation to the loss of output incurred by the Philippine economy as a result of the coronavirus pandemic. By what percentage has this country’s GDP shrunk during the effectivity of the ECQ (enhanced community quarantine) in Metro Manila and the GCQ (general community quarantine) elsewhere in the nation? Considering the output loss sustained by the largest sectors, is the Philippine economy’s full-year GDP shrinkage likely to be closer to 2.0-3.5 percent than to 5.1 percent? That depends on the degree of success attained by this country’s COVID-19 mitigation program during the remainder of 2020. If strict social distancing will be maintained – and that is not the likelihood – production of goods and services will not be capable of rebounding strongly.
The Philippine economy has been dealt an enormous blow by the COVID-19 crisis. Today’s Filipinos have never experienced anything like it and are unlikely, with God’s mercy, to re-experience something like it in the rest of their lives. A realistic analysis of the entire situation suggests that the negative growth of the economy in 2020 will be of a magnitude greater than the upper end of the 2000 3.5 percent forecast
