Domestic economic issues — The COVID-19 recession

The Philippines faces an economic recession that could graduate into a depression. A depression would mean a deeper economic problem which needs to be avoided.

Government policy should be directed at avoiding a depression by turning a recessionary situation into one of positive economic growth rate . Getting to a positive growth rate provides conditions for expanding employment, rising wages and incomes, which obviously can elevate the standard of living. This would protect the nation’s development objectives.

Recession vs. depression. A lighthearted view of recession (from a person’s subjective viewpoint) might be as follows: “If your neighbor loses his job but you still have yours, it is a recession. When both your neighbor and you lose your jobs, it is a depression.”

Economists use two-quarters’ continuous negative growth rate as the technical definition of recession. In more serious terms, a depression is a really bad case of recession, which deserves the new term. Truly, of course, one has to measure a depression over some bad years of economic downturn.

A recession that persists beyond and which deepens its worse consequences on an economy and society is a depression. A depression is conquered by wise economic policies or more favorable economic environment, then economic recovery happens.

In fact, the IMF has described the global economic decline in its recent world economic report as the worst since the Great Depression of the 1930s. The pandemic was the immediate cause of this unprecedented economic plunge.

Lockdown and reallocation of government spending toward safety net. When the government undertook a lockdown of Luzon (and some other regions of the country), it triggered the sudden stop of economic activities.

The lockdown and social distancing measures adopted were meant to contain the virus transmission process and to allow the health care system to pave the resumption of economic activity and hence recovery.

Statistics of COVID-19 cases and deaths. We can have perceptions of the global impact of the COVID-19 pandemic from statistics gathered by the Johns Hopkins University, which sums up the global data on the pandemic. Such monitoring is conducted on a daily basis.

As of April 20, the total cases in the world has reached 2,472, 259 for all countries reporting, with a total of 169,986 deaths. The United States has the highest cases, 784,324 and deaths, 42,094.

In East Asia the statistics of cases and deaths are more modest.

In China, where the first cases of the COVID-19 were reported, the cases have cumulated to 83,817, with 4,636 deaths.

South Korea, where the virus showed up next in terms of impact, has 10,674 cases and 234 reported deaths. Taiwan has 442 cases, with six deaths.

In Southeast Asia, Singapore (which has a small territory with a high standard of health care) has 8,014 cases and 11 deaths. Thailand, the more successful large country in ASEAN in this respect, has a reported 2,792 cases and 47 deaths.

Indonesia has 6,760 cases with 590 deaths. The Philippines has 6,459 cases with 428 deaths. The total population of Indonesia is more than twice that of the Philippines.

So, on a per capita basis, the Philippines would have the highest COVID-19 cases and resultant deaths in the Southeast Asian region.

It is likely that these cases of COVID-19 and of deaths are under-reported. It has been so suspected where the pandemic has hit particular countries, but these numbers are the best we have so far, and they do not put the Philippines in good comparison.

When to open the economy. The question of when to restore more open economic activity looms large. The economy is now almost five weeks since the strict lockdown has been imposed.

The issue is how successful has the lockdown been. This is a public health question as much as it is an economic livelihood question. It must have definitely prevented a larger incidence of cases and of death from the disease.

Many Filipinos have been kept out of their jobs and normal activity. Normalcy implies the opening of retail establishments and all operating businesses. That cannot happen easily.

A gradual opening of some types of activities might be more prudent in order to reduce the risk of resurgence of new infections and a return of the virus.

The only effective way of dealing with the virus, according to public health experts, is to have a testing capability to enable detection of carriers of COVID-19 and to isolate them from social circulation. Also, the continuation of strict social distancing is required, and the massive use of protective masks for the population.

If this state of affairs shows encouraging results, then more aggressive opening of economic activities could be pursued. This would guarantee the road toward recovery and perhaps new growth.

Tough issues for macro managers. From a policy viewpoint, this means ramping up testing capacity. This implies an increase of budgetary resources devoted to this problem. It is an expensive proposition and requires devotion of new resources to keep it up.

At the same time, the government is also running out of subsidy money to help communities in need of food and sufficient resources to bounce back from economic ruin. The first tranche of early support to communities and those badly affected and to private businesses are almost exhausted.

Almost simultaneously, the lockdown has also caused a drop in budgetary income. How fast has tax income fallen because of the drop in demand and in production? How far have export and services income fallen? And how about remittances from OFWs because of sudden loss of jobs?

In short, what would be the cost and effort to drive the economy back toward recovery and growth? This must mean a large gap in resources available. The country would need to fill up that gap to finance it properly.

My email is: [email protected]. For archives of previous Crossroads essays, go to: https://www.philstar.com/authors/1336383/gerardo-p-sicat. Visit this site for more information, feedback and commentary: http://econ.upd.edu.p h/gpsicat/