The Philippine economy may post a modest growth of 0.7 percent at best, or contract by 3.4 percent this year in the worst case scenario, depending on the intensity and effectiveness of anti-COVID-19 (new coronavirus disease) quarantine measures implemented in the country beyond April.
This is according to an economic research note issued on April 17 by Union Bank of the Philippines chief economist Ruben Carlo Asuncion and economic research officer Katrina Joy Javier.
The economists believe that a modified community quarantine (MCQ) may be necessary beyond end-April to buy more time for the country’s healthcare system to cope with the COVID-19 pandemic.
“We think that an MCQ may be required until August to help the country’s health system capacity be not overwhelmed, and we roughly estimate an equivalent decline in GDP (gross domestic product) growth of about 1 percent for every month of MCQ implementation,” the research said.
MCQ is described as a location-specific quarantine scenario that requires social distancing, elimination of checkpoints, limited public transportation as well as continued ban on mass gatherings and suspension of classes in schools.
The optimistic scenario drawn by Union Bank was largely based on the UP COVID-19 Pandemic Response Team’s scenarios where such MCQ would take effect after the enhanced community quarantine (ECQ) on April 30 in order to flatten the infection curve without paralyzing the domestic economy.
The whole of Luzon, which contributes over 70 percent of the country’s economy, has been locked down since March 17. Other key cities like Cebu and Davao have likewise imposed ECQ.
Union Bank’s optimistic scenario of a modest GDP growth this year assumes a 10-30 percent decline in both exports and imports (versus a respective growth rate of 3.2 percent and 2.1 percent last year), a 16-18 percent drop in remittances from overseas Filipinos and an unemployment rate of 6.1 percent (from 5.1 percent last year).
The economists’ worst case scenario is based on the US Federal Reserve’s “rolling shutdowns” scenario as the outbreak recedes but COVID-19 infections flare back up again when the efforts to control the pandemic are loosened prematurely.
“This scenario bares the critical assumption that the return to normalcy is hinged on the availability of an effective antiviral treatment or drug and/or an already widely available working vaccine versus COVID-19,” the research said.
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.
This worst case scenario for this year involves multiple resurgence of the virus that would compel the government to return to tightened quarantine measures as now observed under the ECQ.
In Union Bank’s simulations, the months of August 2020 and January 2021 are the anticipated months of COVID-19 resurgence while March 2021 is the probable month when the vaccine may be discovered. This in turn is based on an optimistic premise that it usually takes 12-18 months for a vaccine to be readily available.
But in both optimistic and worst-case scenarios, Union Bank sees private consumption declining and investments drying up this year as most businesses suspend operations in the second quarter of 2020.
In the worst case scenario, Unionbank sees 7.4 percent of the country’s workforce turning jobless this year, rising from the 5.1 percent unemployment rate seen last year. INQ