Looks like PH can’t escape recession this time, says think tank

The Philippines avoided a recession when the global financial crisis depressed global output in 2009, but with the new coronavirus disease (COVID-19) pandemic overwhelming the planet, it won’t be as lucky this time around, economists from New York-based think tank Global Source said.

But the 2020 recession would likely be mild—less than 0.5 percent gross domestic product (GDP) decline—that the domestic economy could quickly bounce back from by 2021, assuming that governments around the world could contain the spread of COVID-19 by the second quarter and prevent a new wave of infections that would require more lockdowns, Global Source economists Romeo Bernardo and Marie-Christine Tang said in a research note dated April 5.

The last time the Philippines saw an economic recession was in 1998, when the Asian financial crisis—characterized by massive local currency devaluations against the US dollar, the collapse of property markets and a wave of corporate bankruptcies that bludgeoned banking systems—resulted in a 0.6-percent GDP contraction.

“The next two quarters will be difficult for everyone, worst in the second quarter as infections and deaths rise and as uncertainties about containing COVID-19 and preserving firms’ balance sheets intensify,” the think tank said.

Despite its grim base case recession outlook for this year, Global Source said the domestic economy could still generate a modest growth of 1 to 2 percent, at best, this year. This is “if government is able to manage well the economy’s transition out of the ECQ (enhanced community quarantine) and provide swift and ample on- and/or off-budget support to the general public and affected firms, especially small businesses,” the research said.

During the country’s last recession in 1998, private consumption was the only source of demand, accounting for about 70 percent of GDP.

With the ECQ, Global Source noted that millions of households were now relying on government and donor subsidies for basic needs while the rest had to cut spending down to essentials, while business activities have either screeched to a halt or constrained by restrictions in the movement of people and logistical hitches in the movement of goods. This is alongside the slump in external demand given the travel bans, the COVID-19 outbreaks across continents and disruptions in the global supply chain.

“We think also that the economic effects will linger beyond the ECQ, whether the quarantine is lifted as scheduled or extended/modified. Rising COVID-19 infections and the inability of government to presently do mass testing mean that there are no easy choices for the country,” Global Source said.

“Lifting the ECQ too early may see infections rise exponentially, raising more fears that keep demand depressed. Not lifting the ECQ soon enough may see more businesses fall into insolvency, resulting in more job losses that would keep demand depressed. Sadly too, households would not be able to lean too much on remittances, which we had initially thought would stay resilient as in previous crises.”

With the suspension of international cruises and the dim outlook for the industry, overseas workers’ earnings are likewise expected to fall this year as more seafarers are sent home. Social distancing practices post-lockdown are seen to continue to curb activities that involve close human contact, such as going to malls or restaurants.

“The main source of GDP growth this time around is government, which has a spending envelope of about 20 percent of GDP this year plus the recently introduced rescue package worth 1.2 percent of GDP. Nevertheless, we think these are not enough to offset the downturn in private activity. We are awaiting the features of a third fiscal package that we hear is being crafted primarily to help MSMEs (micro and small and medium enterprises) and which may keep more people in their jobs and thus hasten post-quarantine recovery,” Global Source said.

Currently, the government has indicated inclination to extend the ECQ – which is now on its fourth week – by two more weeks, to give government more time to ramp up testing and other healthcare facilities. Global Source expects a modified form of lockdown to be in place until the peak has been hurdled at end-May or early June.

“Based on this timeline, even if government is able to get ahead of the virus and restore confidence by the time the quarantine is lifted, we think a return to some degree of normalcy before late third quarter is unlikely, especially given uncoordinated handling of the pandemic globally that weakens prospects for a swifter global recovery.“

“Although the immediate focus of government’s P200- billion rescue package is the feeding of the tens of millions of unemployed and informal sector workers, many businesses, especially MSMEs, are even now scrambling to heed government’s call to maintain payrolls in the face of collapsed demand and disruptions in domestic and global supply chains,” the research said. INQ