ECQ vs economy

It has been said that containment policies like the enhanced community quarantine (ECQ) now on its sixth week “flatten the medical curve, but steepen the recession curve.” The implication is that there is a direct tradeoff between safeguarding public health and saving lives on one hand, and maintaining economic stability and protecting people’s economic well-being on the other. That is, the more we try to save lives from the pandemic, the deeper we are driving the economy down to ruin — and some argue that the cost to human lives could be worse.Economies have indeed been brought to a virtual standstill as most economic activities have been suspended, except for essential goods and services, and people are confined to their homes, allowed only a minimum of movement. The International Monetary Fund swung from an upbeat global economic growth forecast of 3.3 percent in January, down to a dramatically scaled down 0.6 percent, and now to a rather grim -3 percent — all in a matter of weeks, and with a caveat that this may still be too optimistic.

Until this latest pandemic struck, an economic standstill so widespread as to encompass the whole globe was beyond anyone’s imagination, and certainly unprecedented in the lifetimes of those living today. It’s so new and so strange to most of us, that many are still unable to fathom the profound impact it will have on our economy, and our lives. I’m surprised to hear some pundits boldly proclaim that the Philippine economy can still grow this year, even as larger and richer economies had already declared recessions even before the IMF came up with its latest prognosis. While I would love to be wrong on this, I just cannot see how we can still avoid a significant contraction of our economy this year, at the rate things are going. This means that incomes, output, and jobs will fall, and like it or not, a large segment of the Filipino population will suffer increased pain and hardship this year.

How deeply can the COVID-19 crisis impact our economy? I tried to do some quick arithmetic with the available data to get a clearer idea. The relevant questions to ask include: What industries are the main drivers of the economy, and providers of the most jobs, and how badly are these industries hit by the COVID-19 crisis? On the demand side, what and whose expenditures give the biggest impetus to produce goods and services in our economy, and how are these expenditures being hit by the crisis?

On a sectoral level, the top three that together contribute more than half of our GDP are manufacturing (23 percent); wholesale and retail trade and repair services (17 percent); and tourism

industries (13 percent). All three are seeing deep declines, with production likely cut by at least half during the ECQ. Similarly hit deeply are construction and land, air and water transport. On jobs, the top five contributors are wholesale and retail trade; agriculture, hunting and forestry; construction; manufacturing; and transport and storage—all together accounting for 28 million jobs, or two-thirds of all workers. All except agriculture are likely to have seen more than half their workers idled, adding roughly 14 million to the 2 million already unemployed beforehand.

On the spending side, the biggest impetus to our GDP is household consumer spending, equivalent to 68 percent of our GDP. Investments on durable equipment make up 16 percent, followed by government consumption spending (12 percent) and construction spending (11 percent). Consumer spending will be dented by the displacement of hundreds of thousands of overseas Filipino workers and the corresponding fall in remittances. Other than government consumption spending that the social amelioration program has given a massive boost, investments in durable equipment and construction are also major casualties of the ECQ.

All told, my rough and conservative calculations point to GDP contraction that could range from -6 to -14 percent, depending on how many quarters inactivity persists. By the looks of it, we could be in for a recession we haven’t seen since the politically turbulent years following the Aquino assassination in the early 1980s. God help us.

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