A zombie recovery
DEMAND AND SUPPLY - Boo Chanco (The Philippine Star) - October 7, 2020 - 12:00am

The Department of Trade and Industry (DTI) is now allowing businesses in the service sector and wholesale and retail trade to operate at full capacity, while restaurants and fastfood outlets may sit beyond 50 percent capacity in general community quarantine (GCQ) areas.

Is a recovery for real or we are just testing the waters?

A Spanish economist interviewed by the Financial Times calls it “a zombie recovery.”

“In economic terms, we are not really alive and not really dead. It is an in-between world, where things aren’t so bad you get massive government support, but not good enough for the market to support activity.”

The FT article in early May described life after lockdown as the empty-chair economy. Governments are afraid to ease up out of fear of another wave of Covid infections.

That is the experience in Europe as it is our experience here. Restaurants can open, but only for take-outs or just 50 percent of tables to assure social distancing.

In Spain, the FT reported that businesses may open, but by appointment only. A bicycle shop now has a booking system to limit the risk of crowding and infection. “It’s as if we are doctors or dentists,” the shop owner said, “but we are a hardware store.”

The FT also calls this the new economic twilight zone.  “The next few months are going to feel like an empty-chair economy, with new shift patterns at factories, half-full buses and trains, staggered opening hours and unusually roomy restaurants.”

Until a vaccine is available, our economic, social and cultural life will be subject to mask wearing, social distancing and travel restrictions. People will work at home or have fewer people in the workplace at any one time. That reduces productivity and output.

FT observed that “Governments are tentatively trying to strike a balance between relaxing restrictions too slowly and causing lasting economic damage, and risking a devastating second wave of infection by moving too quickly.”

Government rules aside, the biggest problem as the lockdown eases will be a lack of demand from fearful customers. I, for one, have hardly been out.

A local market analyst observed that “mall occupancies are now back to 70 percent but footfall remains weak at around 30 percent of pre-COVID19 levels. In line with the government’s mid-2021 target rollout of the vaccine, we expect mall revenues to recover gradually in 2021 before recovering fully by 2022.”

But even that may be optimistic… very big IF of a vaccine rollout by mid-2021. The claimed mall occupancy of 70 percent can’t be true from what we are seeing.

Many people lost their jobs or suffered salary cuts, maxed out their credit cards and emptied their savings. They will be careful with discretionary spending, specially travel and restaurant treats, for a long time.

Our favorite restaurants are now just making by through take-outs. But their owners say they can’t recover their investment on take-outs. They are just hoping the recovery will happen sooner. Then again, even the big fast-food chains from Jollibee to McDonalds have closed stores.

Indeed, for our consumer-led economy, consumers may not be able to perk demand. OFWs are losing their jobs, the strong peso has reduced the peso spending power of OFW families. Over all, SWS found in its latest survey that hunger is at a new record-high – 30.7 percent of families or an estimated 7.6 million households.

For the retail sector to recover and start to power our consumer-led economy, there must first be enough consumer confidence. We do not have that, as a BSP consumer confidence survey revealed.

“The country’s consumer outlook turned pessimistic for Q3 2020 as the overall confidence index (CI) fell to a record low of -54.5 percent since the start of the nationwide survey in Q1 2007.

“Respondents attributed their negative sentiment for Q3 2020 generally to the COVID-19 pandemic. Other reasons cited by the respondents were the following: (a) High unemployment rate and less working family members. (b) Low and reduced income. And, (c) Faster increase in the prices of goods.

“Consumer pessimism continued for Q4 2020 as the CI moved into negative territory at -4.1 percent… Apart from concerns over the COVID-19, consumers also cited anticipation of: (a) High unemployment rate. (b) Low, reduced, and no increase in income. And, (c) Faster increase in the prices of goods as reasons behind their pessimistic outlook for Q4 2020.

“The negative all-time low overall CI for Q3 2020 was reflected across income groups, with the low-income group reporting the lowest CI…”

The BSP Survey further reported that “business outlook on the country’s economy was less upbeat for the next 12 months…”

Lack of business confidence had primarily been because of “concerns over government policies, primarily on the perceived insufficient mitigation measures to counter the impact of COVID-19.”

Also of concern is the employment outlook index turning negative for Q4 2020 and the next 12 months, suggesting that more firms may lay off workers in Q4 2020 and the next 12 months. And OFWs, some 300,000 of them or more, are returning… jobless.

In the aftermath of the lockdowns due to the pandemic, many companies will have to figure out if their pre-pandemic business models are still viable. Demands for some products and services may have drastically changed forever.

“For most executives,” the FT quotes a consultant, “the task at hand will be less like restarting a business than [actually] starting a business.”

The FT article was published in early May and as of a few weeks ago, the second wave of infection has engulfed many European countries particularly Spain. Were they not cautious enough? But if they extended the restrictions on their people, their economy would probably be in intensive care by now too.

Everyone is hoping to get back to normal or even to a new normal. But for us and most of the world, that may be months or even years away.

I look out my window every morning towards C5 and see that traffic is starting to build up again. Maybe that means we are about to get going?



Boo Chanco’s e-mail address is bchanco@gmail.com. Follow him on Twitter @boochanco

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