Recovery

Pockets of the world economy have started to recover from the effects of lockdowns imposed to control the COVID-19 pandemic. As some economies started to open up, international crude oil prices surged by more than 45 percent to a high of $75.57/barrel in the first half of this year.

But there is still an eerie sense of tentativeness as more infectious variants of the virus are taking hold over much of the world. A vaccine shortage and questions on the efficacy of some vaccines in dealing with the new variants are making people wonder if recovery is near.

Here in the Philippines, the economic managers are trying very hard to convince the people that recovery is at hand, even as they admit the challenge to get there is still enormous.

Independent analysts like Fitch, the credit rating agency, have painted a cautious picture for our country’s recovery. They revised their outlook for the Philippines to negative, reflecting “increasing risks to the credit profile from the impact of the pandemic and its aftermath on policy-making as well as on economic and fiscal out-turns.

“Fitch believes there are downside risks to medium-term growth prospects… The Philippines’ structural indicators remain weaker than peers’, including per capita income, governance standards, and human development as measured by the World Bank Governance Indicators and UN Human Development.”

Our economic managers are aware of the challenges. In a recent presentation, Economic Planning Secretary Karl Kendrik Chua noted that “the COVID-19 virus is not going to go away easily… Quarantine restrictions and the fall in consumption translate to a total income loss of around P1.04 trillion in 2020 or an average of P2.8 billion a day.

“Quarantine restrictions led to an average annual income loss of P23,000 per worker. However, this average level masks wide differences across sectors and jobs, and some workers are hit much harder, especially those who lost their jobs.”

Chua cited Google mobility data showing people actually going to work is down by around 25 percent. He attributed this to the GCQ and restrictions on children going out, which reduce consumption and prevent many parents from working.

Providing context, Fitch noted that “The Philippines economy has been hit particularly hard by the COVID-19 pandemic and contracted by 9.6 percent in 2020. The pace of economic recovery in 2021 has been set back by new highly transmissible variants and targeted mobility restrictions.

“GDP in first quarter 2021 shrank by 4.2 percent YOY, dragged down by reduced private consumption (negative five percent YOY) and investment (-18 percent YOY).

“Despite progress in the government’s infrastructure investment program, overall investment fell by 27 percent in 2020, highlighting the impact of the pandemic on the economy and raising concerns about the pace and sustainability of the recovery as restrictions ease.

“Unemployment remains high at 7.7 percent as of May, though it has improved from last year’s peak of over 17 percent on robust job creation.

“Green shoots of recovery are emerging, facilitated by the fiscal and monetary policy response and the resilience of remittances and exports. Remittances grew by 4.8 percent in the first four months and exports grew by 21.4 percent YOY in the first five months.

“Fitch expects full-year GDP growth of five percent in 2021, although this reflects low base effects and is down from our earlier forecasts following the weak first quarter outturn and resurgence of the virus in March-May of this year…

“New daily infections have been declining from their peak in April, but are still relatively high. The vaccination program that began in March was hampered by supply disruptions, but these are now beginning to ease…”

But Fitch describes the claimed aim of our government to vaccinate up to 70 percent of the eligible population by end-2021, as “ambitious because under three percent of the population was fully vaccinated as of the end of June.”

For Sec. Karl, “improving the rate of job creation will be crucial in our recovery effort this year. Net employment creation from Jan 2020 to Apr 2021 is +0.7M.

“Almost a quarter of NCR people are hungry due to GCQ. This is very concerning. Areas outside NCR have far less hungry people due to MGCQ. NCR has 3.2 million hungry people, largely due to GCQ.”

But as Sec. Karl rightly points out, “there is no perfect solution. Everything is a trade-off. A careful and calibrated approach is needed to care for both COVID-19 cases and the far majority facing hunger and other diseases…”

He enumerated the “enablers of our recovery” as follows: “re-opening of the economy to MGCQ or better at the appropriate time, and expanding the age group allowed to go out, all with safeguards;

“Timely implementation of the recovery package (2021 budget, 2020 budget and Bayanihan 2 extension, CREATE, FIST, and GUIDE); timely implementation of the vaccine program…

“The reality today is that the virus is not going to go away easily and we will have to live with it for a longer period of time.”

Luckily, the two pillars of our economy are still robustly contributing to growth. The BPO industry is eyeing $29-billion in revenue and more jobs by 2022.

And personal remittances delivered in February 2021 – a rise of 5.3 percent YOY to $2.8 billion (P132.5 billion), according to the BSP. Cumulatively, personal remittances for January to February 2021 grew 1.6 percent YOY to $5.7 billion (P271.4 billion).

Tourism, however, is another story. A big contributor to GDP and local employment, it has suffered the most during the pandemic lockdowns.

Data from the Philippine Statistics Authority (PSA) show that the contribution of the tourism industry to the country’s GDP only accounted for 5.4 percent in 2020, down from the 12.8 percent in 2019. PSA added that this was the lowest since they started gathering data in 2000.

Tourism Congress of the Philippines (TCP) president Jose Clemente III does not expect the tourism industry to return to pre-pandemic levels until 2023 or 2024.

How we balance health and the economy is crucial in the next few months. As Sec. Karl so aptly puts it: We have two economic principles to memorize, dream about, and apply: Nothing is free from heaven and everything is a trade-off.

Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter @boochanco