Three scenarios of recovery

The recent NEDA document with its proposed economic recovery program for the country is a must reading for business decision makers, economists, political leaders and all those that are closely following government policy making. The paper – Philippine Program for Recovery with Equity and Solidarity – is much too long to reprint here. Besides, if you are interested, then you should get a complete draft and discuss it with your colleagues.

There are, however, sections of the paper which I think will be of interest to most people. I will make some observations on these sections.

The paper begins with an overview of the present economic condition of the Philippines.Then it begins to try some projections which are necessary but extremely difficult because the future is based on the future direction of the pandemic. It does show three possible growth scenarios.

The first is a “v-shaped”quick recovery scenario starting in July 2020. This type of recovery is possible if there is a successful virus containment policy which allows the country to move quickly from ECQ, to GCQ to minimum health standards. Successful fiscal policy including social amelioration programs, support to business, increased health capacity and the Build, Build, Build programs.

I find this V-shaped scenario to be least likely. Businesses will not resume investing and hiring at pre-pandemic levels until they can see that the economic recovery is already stable and long term. There are also industries that will take a while to recover such as airlines, hotels and tourism. These industries are labor intensive; but, normality will not come until tourists and ordinary citizens are willing and able to travel.

Once lockdowns are eliminated, I assume the government will either stop or lessen their social amelioration programs (SAP). The government might not be able to synchronize the reduction of SAP with an increase in employment. I also foresee a primary bottleneck in public transportation if the social distancing rules are implemented. The same is true for bars, restaurants and malls.

This brings us to the second scenario which is the W-shaped one, meaning there will be a quick recovery in June or July followed by a second wave of infection. There could be several causes. Unless there is massive testing and contact tracing, it is still possible that several people who are suffering from the illness could be going around and infecting other people. The other cause would be failure to implement social distancing to lessen spread of the virus. It is still hard for me to see how it would be possible to do social distancing on our public transportation system even before this COVID-19 crisis started. Either social distancing will be ignored raising the strong possibility of a second wave of infections; or, it will be implemented which will cause a drastic lack of public transportation which will affect the normalizing of business activities.

The biggest threat of the “W-shape” recovery is that it will force the government to again implement a second series of lockdowns. I feel this will cause such a big psychological letdown that it will make enforcement very difficult. As far I am concerned, the “W-shape” recovery is the worst scenario. It will lead to loss of confidence in the government by the business sector and the general population. It will strain government financial resources since people will again demand social amelioration programs. This is the reason I was in favor of extending the ECQ lockdown after May 15 rather that risk a second lockdown.

The third scenario is a “Long U-shaped” which means a long recovery spanning several quarters with likely recovery in 2022 when vaccine is developed. This assumes that full economic recovery is not possible without a vaccine. This may be true; but, it is also possible that if our government develops the right methodology – massive testing, contact tracing, adequate hospitalization – there could be an economic recovery that may not equal pre-pandemic growth, but will bring us out of economic depression and cause a positive economic growth. I am stating this as a realistic goal because the forecast now is that the Philippines will have “negative” economic growth this year and probably next year.

I am very much concerned about the high unemployment rate which has reached almost five million during the second quarter. There should also be great concern for the millions in the informal economy sector – sidewalk vendors, laborers, small farmers, retail and restaurant workers in small stores and restaurants. The medium and small business enterprisers are actually the biggest employers in the country.

According to the NEDA paper, the ten hardest sectors per the MSME surveys for job losses are the following: 1. Construction, 2. Education, 3. Repair of motor vehicles and motorcycles, 4. Tourism, 5. Finance and insurance activities, 6. Arts, entertainment and recreation, 7. Sports and fitness, 8. Professional, scientific and technical activites, 9. Repair of other items, 10. Real estate.

The NEDA paper also proposes ten areas of structural reforms. I would propose three areas as priorities. These three areas are in education, health and health infrastructure, social protection and public transportation.

The COVID-19 crisis has revealed the terrible and unforgivable state of income inequality in our country. This has led to social inequality in terms of justice, housing and health care. If this issue of income inequality is not addressed, this country will just go through similar levels of suffering and misery every time there is another pandemic or similar crisis.

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