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The worst slump

The worst slump"Rodrigo Duterte now goes in the history books as the president who presided over the Philippines’ worst recession ever."

 

 

The Philippine economy plummeted to its lowest with the nation’s output of goods and services for 2020 (or GDP) declining by a whopping 9.5 percent, the worst drop in the country’s recorded history.

In all four quarters of 2020, the economy contracted: By 0.7 percent in the first, 16.9 percent in the second, 11.4 percent in the third, and 8.3 percent in the fourth, ending the year with a record loss of 9.5 percent in output, a sharp turnaround from the 6-percent growth in GDP in the whole of 2019 which itself missed an earlier government growth target of 7 percent.

The 9.5-percent GDP collapse eclipsed the previous record plunge of 7.3 percent in 1984 after the 1983 assassination of opposition leader Benigno S. Aquino Jr. This triggered a deep recession amid massive capital flight and shutdown of nearly everything.

Rodrigo Duterte now goes in the history books as the president who presided over the Philippines’ worst recession ever.

The Philippine also has the dubious distinction of having the deepest economic decline in 2020 in Asia.

The 9.5-percent slump beat the Manila-based Asian Development Bank forecast of 8.5 GDP Philippine decline for 2020. ADB in December projected a 4.4-percent GDP decline for the whole of ASEAN, with Indonesia declining by 2.2 percent, Malaysia 6 percent; Singapore 6.2 percent; and Thailand 7.8 percent. Vietnam is singular is growing by 2.3 percent, thanks to its excellent pandemic management.

For 2021, ADB thinks the Philippines will score the second-highest GDP growth rate, 6.5 percent, behind Malaysia’s 7 percent and ahead of Thailand’s 4.0, Indonesia’s 4.5, Singapore’s 5.1, and Vietnam’s 6.1 percent.

Former economic planning secretary Cielito Habito, writing for the Inquirer, thinks the Philippines will take much longer than the recovery period of five years after the 1984-89 slump.

The economic squeeze during the 1984-1985 and 2008-2009 recessions “was prominently on the supply side.” “Cash-strapped firms had to cut production and cut jobs, in turn forcing belt-tightening and reducing consumer spending, especially by the working classes,” Habito explains in his column.

In contrast, what Habito and economist Paul Krugman refer to as “the coronavirus coma” “shrank spending almost across the board, with people from all walks of life immobilized in their homes, on top of losing income from the businesses standstill.”

Recalls Habito: “In 1984, consumer spending still grew 1.2 percent, and fell only marginally by 0.5 percent in 1985. It in fact kept growing by 3.7 and 2.3 percent in 2008 and 2009, respectively, slowing down only slightly from 4-5 percent in preceding years.”

During 2020, consumer spending, which is 70 percent of the Philippine economy, declined 7.2 percent, thanks to the world’s longest and severest lockdown imposed by Duterte.

“Restrictions on the demand side, notably on the mobility of children, and hence families, prevented private consumption from making a stronger comeback,” explained Acting Economic Planning Secretary Karl Kendrick Chua.

“Our quarantine restrictions reduced household spending by P801 billion in 2020 or an average of around P2.2 billion per day. The fall in consumption translates into a total income loss of P1.04 trillion in 2020 or an average of around P2.8 billion per day.”

On a per capita basis, Chua said, “annual family income declined by some P23,000 per worker, but this average masks wide differences across sectors and jobs. Some workers were hit much harder, while others lost their jobs completely.”

Addressing Asia’s worst economic slump, Duterte’s chief economic planner said “we entered 2020 with the prospects of becoming an upper middle-income country two years ahead of our 2022 target. Earlier in 2018, we achieved a record low poverty rate of 16.7 percent of the population, lifting some six million Filipinos out of poverty four years ahead of our target.”

“President Duterte’s policy of fiscal prudence and his push for tax reforms enabled us to achieve the highest revenue-to-GDP ratio of 16.1 percent, and the lowest debt-to-GDP ratio of 39.6 percent in 2019. We earned an unprecedented upgrade in our credit rating, which allowed us to access funds for our priority programs at concessional rates and favorable terms. These enabled us to sustainably fund the Build, Build, Build program and provide more and better social services to the people. As a result, both the unemployment and underemployment rates also fell to historic low levels. In other words, we had realized better economic and social outcomes for the Filipino people.”

However, Chua pointed out, “COVID-19 disrupted our growth momentum and development trajectory. To address this unprecedented crisis, the government made the difficult decision of imposing community quarantines as it put a premium on saving lives and protecting communities from the virus, while beefing up our healthcare capacity. This is not without any consequence. Like any policy decision that comes with trade-offs, this one came at a huge cost to the economy and the people.”

Said Chua:

“When we restricted the economy in the second quarter of 2020, GDP fell by 16.9 percent and the unemployment rate rose to 17.7 percent.

“However, improvements were seen with the gradual easing of restrictions. In the third quarter, we had a much slower GDP contraction of 11.4 percent. On a quarter-on-quarter basis, the economy even grew by 8 percent. Unemployment rate also dropped quickly to 8.7 percent.

“In the fourth quarter of 2020, our economy performed better with a smaller GDP contraction of -8.3 percent. This brings the full-year GDP contraction to -9.5 percent, which is at the low end of the DBCC estimate of -8.5 to -9.5 percent for 2020. On a quarter-on-quarter basis, the economy grew by 5.6 percent.

“This improvement was the result of the further reopening of businesses and wider accessibility of public transport since October 2020. However, it also shows the limits of economic recovery without any major relaxation of our quarantine policy.”

 

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Topics: Philippine economy , Benigno S. Aquino Jr. , Asian Development Bank
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