‘Worse than expected’: GDP drop steepest in 4 decades

Café owner Hans Cerdenia did not need official economic figures to tell him the worst had come when he and his business partner closed shop, long before the government announced the country was in deep recession, due largely to the COVID-19 pandemic.

“We’re closing,” Cerdenia said on Thursday, confirming a decision they made in June. “But we’re doing a small home-based online delivery service with a different name. We’re not sure yet if it would work.”

Cerdenia , 34, cofounded Hillcrest Café, a small coffee shop at Sikatuna Village in Quezon City that became a go-to place for students who needed a quiet place to review for exams, or just a good cup of freshly roasted coffee.

Like countless other businesses, it had to stop operating in March when the government declared a lockdown to contain the new coronavirus.

After taking into consideration the risks, the costs, and the uncertainties of keeping the business, they decided to close shop for good. They made the painful decision three months after Hillcrest marked its sixth anniversary in March.

“We actually tried to plan ahead and we could see that the world would not return to normal for at least a couple of years. That was a very big factor in our decision-making process,” he told the Inquirer last month.

“I hope that I’m wrong. I hope things turn better. That would be good for everyone. But the way it looks currently, it feels like this is just starting,” he said.

Gov’t intervention

Asked what government intervention would have helped keep their business afloat, he suggested some financial assistance, waived business fees and tax breaks. A government wage subsidy had helped their workers.

“But so long as you have high overhead [costs], and you have rent bills [and other costs], it’s very hard to survive,” he said.

The numbers can only come close to the impact of their loss.

On Thursday, the Philippine Statistics Authority (PSA) reported that the economy shrank by 16.5 percent in the second quarter of the year, the steepest quarterly fall since the 10.7-percent contraction seen in the third quarter of 1983.

Ominous signs

Authorities had expected the country would fall into recession after the lockdown had stopped around 75 percent of the country’s economic activities, according to acting Socioeconomic Planning Secretary Karl Kendrick Chua.

There were other warning signs. According to PSA data, 7.3 million Filipinos went unemployed in April, leading to an unemployment rate of 17.7 percent, the highest in 15 years.

Since the start of the year, the Department of Labor and Employment (Dole) said 1.9 million workers went jobless because of temporary closures and 1.1 million were displaced because of “flexible work arrangements,” which included forced leave and reduced workdays.

As of Aug. 2, more than 6,840 businesses across the country had informed Dole that they were either laying off their workers or closing shop for good. This displaced 141,958 workers, according to the job displacement monitoring report.

This is the third straight year that the Philippines’ high-growth potential had been stunted by extraordinary circumstances—the high inflation episode in 2018, the delayed national budget approval last year, and the global COVID-19 pandemic this year.

The halt in economic activities resulting from the enhanced community quarantine (ECQ) in Metro Manila, Luzon and other parts of the country cost the economy about P1.5 trillion a month, Chua said.

Gross domestic product (GDP) declined to P8.6 trillion during the second quarter from P9.3 trillion in the same period in 2019, according to National Statistician Claire Dennis Mapa.

The sharp GDP fall in the second quarter—the biggest since 1981 using the current measurement of the national economic output and likely the fastest year-on-year drop since World War II—resulted in technical recession, or two straight quarters of economic contraction.

Palace assurance

Presidential spokesperson Harry Roque said Malacanang was “concerned by the steep drop which is much worse than what our government economists had expected.”

“Our resolve to recover at the soonest possible, however, remains strong,” he said. “We assure everyone that the government will continue working round the clock to strengthen our resilience and bring us back to the path of inclusive growth.”

President Rodrigo Duterte’s economic managers expect the economy to contract by 5.5 percent for the entire 2020, dropping from the previous projection of 2-3.4 percent, Chua said.

In the second quarter, the agriculture sector eked out 1.6-percent year-on-year growth while industry fell 22.9 percent and services dropped 15.8 percent.

The economic team, however, had no regrets in imposing the lockdown “because the priority was clearly to save lives from COVID-19,” said Chua, who heads the state planning agency National Economic and Development Authority (Neda).

He said it prevented an estimated 1.3-3.5 million cases and saved the lives of 59,000 to 171,000 people.

One step back

While the economy wobbled, Chua said the government prevented the poor from slipping back to poverty, citing the administration’s “biggest ever income support and wage subsidy program” for 18 million households and 3.1 million workers of small businesses.

Government consumption spending grew by 22 percent in the second quarter and P665 billion was allocated to support the people and the health-care system with P400 billion already disbursed, he said.

Public construction quickly resumed by June after the ECQ was lifted, contracting by only 0.9 percent.

Finance Secretary Carlos Dominguez III, who heads the economic team, said that if the government did not continue and increase public sector spending, especially on infrastructure, public health and social protection, the economy would have performed “much worse” and the first-semester GDP would have shrunk by 11.5 percent versus the actual 9 percent.

Chua said the modified ECQ (MECQ) imposed on Metro Manila and several nearby provinces may be one step back for economic recovery.

The MECQ was in response to a call for a “timeout” from more than 100 medical groups to give the authorities time to refine the government’s response to the pandemic.

“If we use this time well, we can improve our health-care system and pave a stronger foundation for the resumption of the economy,” Chua said.

Dominguez was more emphatic, telling reporters: “If more people get sick, that’s worse for the economy.” —WITH REPORTS FROM JULIE M. AURELIO AND INQUIRER RESEARCH