"We should be thankful if the economy is able to return to near-normalcy before the middle of 2021."
Against the advice of those who fear a second wave of coronavirus infections – and in a display of increasing insensitivity toward the persistently high mortality rates – the political establishments of the biggest COVID-19-hit countries have in recent weeks taken steps toward gradually reopening their economies. There are wide differences in the expectations of the duration of the economic recovery process: some political leaders, especially those who are looking at reelection contests in 2020 and early 2021, are making noises about quick recoveries, while other, more realistic politicians are more measured in their assessments of their countries’ early-recovery prospects.
The economy-reopening countries expect their national economies to recover according to one of three speeds: very rapid, moderately rapid and slow. When they are presented as curves in a statistical chart, these speeds appear as curves shaped like the letter V, curves shaped like the letter U with a fairly narrow bottom and curves shaped like a U with a wide bottom. It goes without saying that an economy will have a tougher time climbing out of a deep-U situation than a shallow-U state of affairs.
A V-type recovery is possible under normal circumstances, but these are hardly normal circumstances. Worldwide GDP (gross domestic product) declines have been severe in a universal downturn that is threatening to surpass the Great Depression in destructiveness. The losses of production, employment and income have been so sudden and so widespread that resurgences as sharp as the plunges will be virtually impossible. Thus, recoveries depicted by V curves can be ruled out.
Most of the COVID-19-hit countries are reopening their economies in gradual fashion, with selected industries allowed to return in the reopening’s first phase, some industries allowed to reopen in the second phase, and so on. This gradualness, coupled with the retention of the health safety protocols – social distancing, no large gatherings, etc. – dictates that the economies’ return to normalcy will happen with only moderate rapidity. The graphic depiction of this situation is a curve shaped like wide-bottomed U.
The third type of curve, the wide-bottomed U curve, is reserved for economies that have been hit the hardest by the coronavirus. Deserving of special mention are economies that rely on tourism and economies that are highly exposed to the international business cycle by virtue of their full integration into the world economy. Times like the present bring into play the negative side of globalization.
The political leaders of the US and other COVID-19-hit countries essentially are having to choose between (1) a combination of a V-shaped economic recovery curve and a high COVID-19 mortality rate and (2) a combination of a reduced mortality rate and a U-shaped recovery curve with either a deep or a shallow bottom. Those who have a rapidly approaching appointment with their nations’ voters are bound to opt for a V-shaped recovery curve, while those who care strongly about mortality numbers will opt for a recovery curve that represents an acceptable balance between livelihood and lives.
Occasionally one reads or hears about a third kind of economic-recovery curve, namely, a W curve. In a recovery of the W-curve kind an economy executes a quick recovery, declines sharply once more and recovers quickly again. Considering the extreme difficulty that attends a V-type recovery in the present environment, the idea of a recovery in W fashion need not be accorded serious consideration.
Which way will the Philippine economy’s recovery go? Is it capable of executing a V-type recovery? Or is its recovery likely to be of the U-curve kind? Because of the severe damage it has sustained, and the maintenance of the health-related restrictions, this country’s economy will not be able to execute a V-type recovery. Its recovery is likely to be in accordance with a wide-bottomed U curve, i.e., will likely be slow. The Filipino people should be extremely grateful to the Almighty if the Philippine economy is able to return to near-normalcy before the middle of 2021.
