All around us, businesses are closing, millions are losing their jobs, and for the first time in decades, swaths of our population are entering poverty, not escaping it. The Wuhan virus has caused havoc to our economy and around the world. But how bad is the situation exactly? Through numbers, this piece describes the severity of the situation here and abroad.
Let’s look at the global situation first. Out of 195 countries, 170 have reported declines in their gross domestic product (GDP). The number of countries affected by the pandemic is significantly more than those affected by the Spanish Flu and World Wars 1 and 2. Its scope and scale is unmatched with an estimated loss of US$7.2 trillion in global output so far. In fact, 90 countries have already approached the International Monetary Fund for precautionary and/or emergency loans.
The impact of the Wuhan virus is two times worse, in depth and scope, than the Global Financial Crisis of 1997 and the Asian Financial Crisis of 2008. In the second quarter of 2020 alone, the world’s leading economies declined by unprecedented rates. Economic contraction was at 21.7% for the United Kingdom; 19% for France; 12.4% for Italy; 11.5% for Canada; 10.1% for Germany; 9.5% for the United States, and 7.8% for Japan.
Within ASEAN 6, Malaysia’s economy declined by 17.1%; Singapore by 13.2%; Thailand by 12.2%; and Indonesia by 5.3%. Only Vietnam bucked the trend by growing at .4%. Lamentably, the Philippines reported the second most severe decline among its peers with a 16.5% contraction.
Which sectors of our economy were affected the most? On the supply side, industrial output plunged by 11.9% while services fell by 15.8%. Agriculture grew by a token rate of 1.6%. On the demand side, household consumption sank by 15.5% while capital formation spiraled down by a massive 53.5%. Government consumption increased by 22.1% due to additional spending from Bayanihan I.
Our leaders clearly underestimated the effects of its militaristic quarantine. I was told by a cabinet member, no less, that even our economic managers were shocked by the 16.5% economic contraction in the second quarter. They expected a drop in the vicinity of 10%. This only means that they never had a firm grasp of the damage they were causing when they imposed the ECQ (enhanced community quarantine, the strictest level of quarantine).
The Asian Development Bank recently published a study that quantified the level of lockdown stringency of countries around the world. Within ASEAN, the stringency quotient of the Philippines was the highest at 83.33 points. Malaysia was a far second at 59.93, Thailand was at 59.26, Indonesia was at 54.17, Singapore was at 53.7, and Vietnam was at 51.85. These scores exemplifies how severe the lockdown measures of the IATF (Inter-Agency Task Force on Emerging Infectious Diseases) were. It was overkill.
What stings bitterly is that despite the government’s militaristic quarantine that destroyed many parts of the economy, the IATF failed to curb infection rates.
Which industries were the hardest hit? According to the National Economic and Development Authority (NEDA) statistics, the aviation and air transport industry were the most affected in that revenues plunged by a 93.8%. This was followed by sea and water transport at 72.8%; hotels and accommodation services at 73.4%; land transport at 65.6%; restaurants and food service at 64.9%; sports, entertainment and recreation at 63.2%; construction at 33.5%; and real estate by 20.1%.
As for unemployment rates, the level of joblessness varies depending on who you talk to. The government, through the national statistics office, claims that unemployment stood at 17.5% as of last April. The Department of Labor and Employment (DoLE) said that they expect 10 million adult Filipinos to be jobless this year, representing 16.5% of the workforce. However, a recent survey by pollster the Social Weather Station revealed that 45.5% of the population are presently without jobs. Last December, the number of jobless Filipinos stood at only 7.9 million. This means that 19.4 million have lost their jobs since the onset of the pandemic.
The pandemic has caused a bloodbath among micro-, small- and medium-sized enterprises (MSMEs). While there are no official numbers as to how many businesses have fallen into insolvency, a mathematical estimate suggests that 72% of all MSMEs have either closed permanently or significantly downsized. Between 250,000 to 300,000 MSMEs have already gone belly-up. This explains the run-away unemployment rate. OFW remittances contribute some $33.5 billion to the economy annually, representing about 9% of GDP. It comprises 20% of all household income and is what fuels our consumer-lead economy. About 12% of all Filipino households depend on remittances for their existence. OFW remittances is one of the four major dollar earners of the country (the others are foreign direct investments, IT BPO’s and the tourism industry). As of Aug. 16, 604,403 OFWs have been repatriated. DoLE expects a 30% to 40% drop in remittances in the next few years.
As far the tourism industry goes, in 2019, tourism accounted for 12.7% of gross domestic product or roughly $45 billion worth of goods and services. Of this amount, 10.8% or $38.5 billion was attributed to domestic tourism. There were 120 million domestic travelers in 2019, compared to 8.2 million foreign visitors.
The tourism industry is the source of 11 million jobs, a large chunk of our workforce. From posting double digit growth in the past years, visitor arrivals plunged by 73% from January to July. Revenues derived from tourism dropped proportionately at 71%.
Economists estimate that it would take a stimulus package of no less than 15% of GDP to rebuild the economy.
So far, the government has only committed to a stimulus package of $23.87 billion, or 6.7% of GDP, through Bayanihan I and II and the stimulus measures of the central bank.
Our stimulus package is too small to make a significant impact. The absence of a decent stimulus package will prolong the hunger and suffering of our people and retard our recovery. In contrast, the Singapore’s stimulus package is at 26% of GDP, it is 22% for Malaysia, 18% for Indonesia, 16% for Thailand, and 10% for Vietnam.
Different institutions have different growth forecasts for the Philippines for 2020. Of course, the Philippine government is the most optimistic. It forecast a GDP contraction of only 5.5% this year. Financial institutions are more pragmatic. The Bank of the Philippine Islands sees the contraction to go as deep as 8% while HSBC puts it at 9.6%.
For next year, the Philippine government projects a growth rate of 6.5% to 7.5% while HSBC sees growth at 7%.
Considering low base effect, these numbers suggest a U-shaped recovery.
Our recovery prospects are not written in stone. It can still improve if congress passes the P1.3-trillion ARISE bill or the P1.5-trillion CURES bill. For as long as the stimulus funds are spent where they were intended and not diverted by congress to their pork barrel fund, the speed of our recovery can be hastened
Andrew J. Masigan is an economist