No Free Lunch

LUV after COVID-19

Can the Philippine economy rebound quickly after we get over the COVID-19 pandemic, and achieve a V-shaped recovery (meaning, a quick bounce back to where we were before, or better)? Or will the scenario moving forward look more like a U curve, dwelling at or near the bottom for a while before economic activity picks up again? Or could it even look like an L, dwelling at or near the bottom indefinitely, implying no significant recovery and restoration in the foreseeable future?

Back in 2009, in the midst of the world financial crisis and global economic recession, the same question—whether the recovery was going to be L, U, or V-shaped—came up then. At the time, the outlook for global recovery largely hinged on what shape the recovery would take in the US economy, the origin of the global crisis. Many predicted an L-shaped outlook for the United States then. It turned out to be a double-dip W-shaped curve that followed an L shape after the second dip: US GDP growth was -2 percent in 2008, -2.4 percent in 2009, rebounded to 5.1 percent in 2010, dipped again to -1.01 in 2011, then averaged a meager 0.19 percent from 2012 to 2018. The Philippines, with much less dependence on exports relative to its erstwhile more dynamic neighbors, did a lot better through that crisis: Our GDP growth never went negative, and went only as low as 0.9 percent in 2009, but bounced back in a V-shaped rebound to 7.3 percent in 2010, and averaged 6-7 percent annual growth from then on.


But that was a different kind of crisis. It mainly hit us on our foreign economic linkages—that is, exports, tourism, and foreign direct investment—but bustling growth in domestic demand for our goods and services saw us through. We said then that our lack of international exposure—so crucial to the dynamic growth of our Asian “tiger” neighbors since the late ’80s, which passed us by—became a blessing in disguise, as our external vulnerability was low. Now, however, we have an economic crisis that has reduced demand for goods and services all over the globe, and all across the board. Forced quarantine and lockdown, the near-universal response to the COVID-19 pandemic, has put nearly all economies of the world at a standstill, dramatically cutting consumer and investor spending, hence demand from domestic and foreign spenders alike. Worse, the badly hit sectors and industries are those where jobs tend to be concentrated.

So will we have an L, U, or V-shaped scenario after we get over the pandemic? The answer would depend on the rate of recovery of the sectors or industries most severely affected by the enhanced community quarantine (ECQ), especially those that have been forced to a standstill. These are sectors where production activity has fallen by anywhere between 50 and 100 percent. The notable ones are retail trade (other than in food and essentials), which I estimate to be around 14 percent of our GDP, tourism (12.7 percent), construction (7 percent), manufacturing of nonessentials (7 percent), passenger transport (2 percent), and others. These alone add up to about half of our economy, right now at a near if not total standstill.


How easily can these sectors rebound after the ECQ? Tourism is unlikely to rebound in any strong way, as the pandemic has made people all over the world think twice about traveling. Some airlines have in fact already gone bankrupt and are closing operations, and the hotel industry is bracing for hard times. Passenger transport will also probably not rebound fully. Retail trade will take a while to rebound as well, as I’d expect people to be generally wary of flocking to the malls for some time. Manufacturing could have a moderate rebound, but will also show longer-term sluggishness due to disruptions to global value chains that the US-China trade war had already caused, and only worsened by the pandemic. Of the above, only construction can probably bounce back quickly, especially government construction under the “Build, build, build” program.

All told, we can rule out a V-shaped recovery. It will look more like a U, possibly with an extended bottom. Even so, COVID-19 has taught us to be prepared for surprises anytime.

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