with RUELLE CASTRO
EXPERTS agree the country will post a slower growth this year, with one projecting as slow as 3 percent, following a projected economic loss of P1.157 trillion during the one-month lockdown in Luzon due to the coronavirus disease (COVID-19).
That is about half the gross domestic product target for this year of 6.5 percent to 7.5 percent.
At the Laging Handa briefing yesterday, Albay Rep. Joey Salceda yesterday said the country is still expected to grow up to 3 percent even as he stressed the work stoppage in non-essential industries was necessary to prevent the country from going into recession and at the same time, save more lives and contain the impact of the COVID -19.
“You can only kill the virus if you temporarily stop the economy. So the solution really… work stoppage, and class suspension,” he said.
Salceda believes had the government delayed its actions on the coronavirus, the country would see itself under a recession.
“If we did not do it, there will be a mass community transmission, a runaway infection that would result in the loss of confidence in the country. If the lockdown was not implemented, we could slip into a recession,” he said.
Salceda believes despite the loss and the growth slowdown, the country would still fare better and grow faster than other countries affected by COVID-19.
Consumption slowdown
Nicholas Mapa, ING Bank senior economist, said “prospects for growth have dimmed in recent weeks with the COVID-19 outbreak threatening to slow economic activity to a halt.”
“With the community quarantine, 74 percent of the economy is asked to stay home with consumption limited to basic goods and necessities, with demand for services, investments and exports all on pause. Growth prospects and the fate of the country now rests on how quickly and substantial a government response (can be implemented) in the face of COVID. The initial P27- billion spending plan is a mere 0.1 percent of GDP and will likely not be enough to help offset the impact of an economy on shutdown for a month,” Mapa said.
ING Bank, however, remains optimistic the Philippines can still eke out a 5.6-percent growth.
Recession?
Alvin Ang of the Ateneo Center for Economic Research and Development said the Philippines risks the chance of a recession.
“Our last estimate on the impact of COVID-19 was a slowdown. But the (Luzon) lockdown is another story,” Ang told Malaya Business Insight in an interview. Ang said one factor that works as a drag to Philippine prospects is the impact of COVID-19 to China whose trade to the country comprises a quarter of international trade. The remaining 75 percent is likewise indirectly related to China.
It really has a big effect on our trade,” he said.
Ang said the government’s role is crucial in these challenging times: invest in resources that will protect the country’s human resources and production capacities to take the country to recovery once the epidemic passes.
Ang said the lockdown sparks supply and demand problem in Metro Manila, the center of economic activity of the Philippines.
“If you’re locking down there is no movement, no movement, no production, and no consumption,” he said.
Ang said the impact of this lockdown cannot be compared to the 2007-2008 US subprime crisis that morphed into a global financial crisis as the latter involved the financial market.
“This is a supply and demand, real economy, problem. If there is no supply, you’re cutting demand; you’re then choking the economy,” he said.
Fiscal stimulus
Ang said the government’s role is very crucial particularly in keeping business and consumer confidence intact.
Ang said more than using monetary policy, as what was done in the 2007-2008 crisis, the government needs to double down on fiscal stimulus to keep the economy afloat.
“They really have to spend for everybody, from providing basic services, postponing tax collection, they really have to spend much on this,” he said.
“ Definitely we will have deficit more than what the government has targeted. If we don’t do something drastic like this (fiscal stimulus) you might not have any economic growth in the next five years because you will lose much of your resources, your capacity. You have to protect your capacity,” he added.
Business steps in
Following the lockdown, businesses trained their resources to sustain the needs of their employees and partners by paying full salaries, giving paid leaves and waiving rents to tenants.
Big companies like the Ayala Group of Companies, SM Group of Companies, San Miguel Corp., Aboitiz Group of Companies, LT Group of Companies, and the Gokongwei Group of Companies immediately responded to the call, committing to secure employees’ and partners’ needs.
Twin shock
Stockbroker Unicapital Securities Inc., in a study, echoed the opinion of Ang noting that COVID-19 is a “rare twin shock,” to the economy given its impact to both supply and demand
“The global supply chain, which is heavily dependent on China as the world’s factory, has been severely disrupted such that companies like Apple, Inc. are facing challenges in supplying their customers’ needs. Assuming no change in the level of demand among consumers for things like cars, smartphones, laptops, clothes, and even dining out, the disrupted supply chain could lead to higher inflation due to lack of supply, a situation wherein monetary policy may not be the best solution,” Unicapital said.
Unicapital said this puts policymakers in a bind since the problem “makes it more challenging to assess the effectiveness of various policy actions.”
“Normally, a demand-side issue alone can be addressed by adjusting monetary policy tools such as interest rates to stimulate business and individual spending, provided there is no problem with the supply side,” it said.
Worst hit
“History has shown that the businesses to be hit first, and usually the hardest, during a disease outbreak are those related to tourism (hotels, restaurants, retail shopping, tourist attractions, travel agencies), recreation (concerts, sporting events), transportation (airlines, cruise ships), and conventions/conferences. Whether it’s a government-imposed ban on these activities or a voluntary move by the private sector, the objective is the same: to contain the spread of the disease by minimizing close human contact, especially in crowded places. The impact on these businesses is usually immediate and could be quite severe, as many people will either cancel pre-booked trips or simply avoid going to public places,” it said.
Social distancing is the norm
Another stockbroker, Abacus Securities Corp., meanwhile earlier said that while the “lockdown” is not “as draconian as compared to other countries,” social distancing will be the norm and will invariably hurt many sectors of the economy, which may drag the first quarter GDP’s growth worse than the 5.6 percent recorded last year.
