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No strong recovery in fourth quarter

No strong recovery in fourth quarter"We will have to wait for 2021, at the earliest."

 

 

When the Duterte administration decided on March 14 to place Metro Manila and Luzon, and the rest the country, under Enhanced Community Quarantine and General Community Quarantine, respectively, after having banned international airline flights, economists and financial analysts went back to their drawing boards to prepare forecasts of Philippine economic activity in the pandemic-afflicted period that lay immediately ahead. Needless to say, the new forecasts would embody drastic downward revisions; up to the first quarter of 2020, Philippine gross domestic product growth of between 6 and 6.5 percent had generally been predicted for 2020.

Most of the new economic scenarios for 2020 went like this: GDP growth would be less than 6 percent in the first quarter, the second quarter would be a disaster—growth would be negative—the economy would begin to recover in the third quarter and the economy would pick up steam in the year’s last quarter.

Although the final Philippine Statistics Authority figures for the second quarter have yet to come in, it can be said with certainty that the revised GDP forecast for 2020’s first two quarters has proven to be accurate. The banning of international airline traffic and the tight lockdown during March’s last half combined to bring GDP growth to below 6 percent. With all land transportation suspended in Metro Manila—and, of necessity, parts of Calabarzon and Central Luzon—a part of this country that accounts for close to 20 percent of its total output of goods and services was largely immobilized. The hit sustained by the tourism sector supplies the rest of the explanation for the first quarter’s below-6-percent growth performance.

Forecasting a very bad second quarter for the economy was a no-brainer: Requiring all people except frontliners and “essential” producers and delivery persons to stay at home for 14 weeks—from March 17 to June 30—was bound to send the economy into a tailspin. When the final figures are all in, the second quarter of 2020 is bound to emerge as the worst quarter in the Philippine economy’s post-World War II history. Estimates of the GDP’s drop range from 2.5 percent to 5 percent. There is no way to describe the economy’s second-quarter performance other than as a disaster.

Toward the end of June, the Duterte administration signaled its desire to start the process of returning the Philippine economy to near-normality. The Inter-Agency Task Force for the Management of Emerging Infectious Diseases eased the quarantine stats of Metro Manila to Modified ECQ and that of most of the other regions to GCQ. Metro Manila’s new status permits some hitherto-prohibited productive activities and the return to the roads of some previously disallowed means of transportation.

These easing measures should by now have generated signs of broad economic revival, but as it approaches the end of its first two-week period, there are few indications that the current quarter will lead the way to a strong year-end finish for the Philippine economy. The third quarter is starting weakly. There are several reasons for this in addition to the usual lags of economic-policy changes.

The first and most consequential reason is the weakness of the government’s fiscal-policy response to the pandemic. Knowledgeable observers predicted that the social amelioration funds made available by the Bayanihan Act would be inadequate for the needs of the approximately 18 million families that have been hit hardest by COVID-19; their prediction has been borne out by subsequent developments. The loss of purchasing power by the millions who have lost their jobs—placed by PSA at around 17 percent of the nation’s workforce—and the tens of thousands who have closed their businesses has not been fully compensated by the Bayanihan Act. Clearly, supplementary legislation will have to be enacted—and quickly—if millions of Filipinos are to have purchasing power for their most basic needs in the coming months.

A second factor operating to prevent a strong third-quarter economic revival is an element that is unquantifiable: Fear. Because asymptomatic people have been shown to be possible carriers of COVID-19, fear remains pervasive even where the health safety protocols have been adjudged relaxable. There still is widespread reluctance to consume the goods and services that IATF has decided to place back in the market; many people are still not inclined to resume their pre-COVID-19 eating, wellness and entertainment habits.

Still another factor is the continued inadequacy or outright absence of transportation facilities for factories and service establishments to be able to resume production; workers have to be able to get to them. That is the big problem: Workers who have been rehired or are trying to find new jobs have great difficulty getting to workplaces due to IATF’s health safety protocols and capacity limitations. The wheels of the economy will not turn if workers are without wheels.

With the gradual easing of quarantine regulations in Metro Manila and elsewhere, the process of returning the Philippine economy to near-normalcy has begun. But the movement will be weak and slow. The third quarter cannot be expected to lay the groundwork for a string, the-economy-is-back fourth quarter.

The start of the Philippine economy’s sustainable recovery will have to wait for 2021’s first quarter at the earliest.

Topics: Duterte administration , Philippine economy , coronavirus pandemic
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