2020: A disruptive year for Philippine economy

A look back at economic upsets during lockdown and initial rebound upon relaxed quarantine

The year that passed can be described as disruptive and tumultuous for the Philippine economy due to the widespread effects of the coronavirus disease 2019 or COVID-19.

Sandwiched into the pandemic’s impact are the effects brought by the Taal Volcano eruption back in January 2020 and the typhoons that struck the country in the last quarter of that year, with Typhoon Ulysses causing the biggest damage.

With the pandemic forcing the government to implement an enhanced community quarantine (ECQ) last March, many shops were closed, open businesses were limited to essentials, and a lot of professionals had to adjust to working from home. Seventy-five percent of the economy was brought to a halt.

As the pandemic made a broad impact that has been felt across industries, businesses, employees, and households, it called for economic deciders to quickly address the issues that emerged. On the other hand, it pushed businesses to adapt to accelerated disruptions, although many were forced to cut operations and manpower or, worse, close down.

COVID-19’s impact on the economy has been initially confirmed and reflected by the country’s gross domestic product (GDP) in the first quarter of 2020, which according to the Philippine Statistics Authority (PSA) fell by 0.7%. The first contraction of GDP since the fourth quarter of 1998, the drop was even faster than the initially reported 0.2%.

The services sector dropped to 0.6%, while the industry sector dropped to 3.4%. A 0.3% decline was recorded in the agriculture, hunting, forestry, and fishing sector.

A further decline was recorded in the second quarter (Q2) when the GDP slumped by 16.9%, confirming a recession in the country since 1991. While this figure was revised in November after the initial 16.5% four months earlier, this is the biggest contraction based on PSA’s data, compared to the 10.7% decline tallied in the third quarter of 1984.

The drop in the services sector is at 17%, while contraction in the industry sector was at 21.8%. Agriculture, forestry, and fishing was the only sector that posted growth, with 1.55%.

Aside from the GDP, other indicators also reflected COVID-19’s impact on the economy. 

Employment woes

The pandemic gravely hit unemployment levels as many jobs were lost and work opportunities turned apparently scarce. On April 2020, PSA’s Labor Force Survey posted the unemployment rate at a record-high 17.7%. This equates to around 7.25 million jobless Filipinos, 4.98 million more than those who were jobless in April 2019.

Also worth noting, the labor force participation rate was at 55.6%, translating to approximately 41.02 million out of 73.7 million Filipinos aged 15 years old and up. This rate was the lowest in the history of the country’s labor market, according to the PSA.

The underemployment rate, meanwhile, increased from the previous year’s 13.4% to 18.9%, an equivalent of 6.39 million underemployed Filipinos.

The employment rate, on the other hand, declined from 94.9% to 82.3%, amounting to approximately 33.76 million Filipinos.

Lows in stocks, trade

Furthermore, the local bourse experienced a ‘free fall’ upon the lockdown. On March 19, four days after the Luzon-wide lockdown took place, the Philippine Stock Exchange index sank 13.34% to close at 4,623.12, its lowest level since Jan. 26, 2012. This plunge in the index erased P1.16 trillion in market value.

Trade, both international and domestic, also showed plunges.

At international trade, a losing-streak in merchandise exports started in March, with a 24.7% decline. It further slipped by 50.8% to $2.78 billion in April. 

From a 26.2% decline in March, merchandise imports further dropped by 65.3% to $3.28 billion in April.

Based on available PSA data, these declines both in exports and imports were the biggest year-on-year. Also, the figures were marked the lowest since the $2.51 billion worth of exports in February 2009 and $3.06 billion of imports in April 2009. 

Domestic trade, on the other hand, experienced a sharp decline in the first quarter of 2020. The total value of domestic trade dropped by 42.7% to P125.31 billion, below the previous year’s P218.53 billion.

Grounded on fundamentals

These aforementioned numbers are just some of the indicators of the upsets in the Philippine economy brought by the pandemic. Yet, for the country’s economic planners, they find the economy strong enough to face the pandemic’s impacts.

Karl Kendrick T. Chua, Acting Secretary of National Economic and Development Authority (NEDA), noted in last November’s BusinessWorld Virtual Economic Forum that the Philippine economy is grounded on positive macroeconomic fundamentals before the pandemic. Among these fundamentals are the average GDP growth of 6% achieved between 2016 and 2019 and the upgrading of credit rate from BBB+ to A-. Given these fundamentals, he stressed that “the economy is strong enough to recover if we enable it to do so”.

Also, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno finds reason for optimism on the economy’s prospects in spite of COVID-19’s gloom.

“The long reform agenda that the government has consistently pursued across administrations has allowed the country to achieve a more broad-based growth. The volatility of real GDP and inflation considerably declined over time. Aggregate demand in the post [Global Financial Crisis] period expanded at an average rate of 6.4% annually, comparable to the growth rates of China and India,” Mr. Diokno shared during a webinar of the Makati Business Club last May.

The governor added that the country has “ample FX buffer, low public sector debt, manageable external payments position, and a solid credit profile”. He also noted that while the pandemic caused gloomy signs in the economy, “the peso is the less depreciated currency” compared to regional currencies that “have depreciated significantly against the US dollar”.

Stimulus response

Among the several responses dealing with COVID-19’s impacts, several bills were passed to stimulate the economy amid the pandemic. On March, the President signed the P275 billion Republic Act No. 11469, more known as the Bayanihan to Heal as One Act (Bayanihan I). The legislation, which granted the President special powers to realign funds from within the 2020 national budget, provided for cash handouts between P5,000 to P8,000 a month over two months for 18 million low-income families.

Bayanihan I also grated special powers, among others, to ensure availability of credit to productive sectors of the economy and to provide a grace period on residential rents within the period of ECQ. It also called for direct banks and other financial institutions to implement a grace period for payments of loans and credit card bills.

Heeding the call for more stimulus, Bayanihan I was followed up by Bayanihan II, more known as the Bayanihan to Recover As One Act. Bayanihan II, technically known as Republic Act No. 11494, was signed into law last September. It provides a P165.5 billion fund to boost the country’s response to the pandemic while extending the special powers to deal with the health crisis. Composed of a P140 billion stimulus package and a P25.5 billion standby fund, Bayanihan II was expected to benefit industries and sectors affected by COVID-19.

Among other allocations, a total of P50 billion is intended as capital infusion to government financial institutions for supporting state-owned banks and funding credit guarantee program and lending programs to micro, small, and medium enterprises (MSMEs).

Initial recovery

After months of ECQ and modified enhanced community quarantine (MECQ) in Luzon, the National Capital Region has been placed under General Community Quarantine (GCQ) since June, and other areas soon transitioned to Modified General Community Quarantine (MGCQ).

These relaxed quarantine measures allowed the economy to slowly reopen as the so-called ‘new normal’ proceeds. More businesses reopened, including malls (beyond essential stores); and transportation gradually returned to service passengers. 

While a slow and steady bounce back was temporarily paused when most of Luzon returned to MECQ for two weeks last August upon the request of medical frontliners, initial recovery has been seen.

While GDP remains contracted in the third quarter (Q3), it nonetheless has got up from Q2’s plunge, garnering an 11.5% contraction. The services sector recorded a 10.6% decline; while the industry sector tallied 17.2% decline. Both declines are slower than the Q2’s figures.

The unemployment rate started to ease in since July, which recorded a lower 10%, an equivalent of 4.571 million jobless Filipinos. In October, the rate went much lower at 8.7%, translating to 3.813 million jobless Filipinos.

For Mr. Chua of NEDA, these changes show the economy’s flexibility to whatever policies are set in place. “The economy is very flexibile and will respond to the policy we will put,” he stressed.

Underemployment, likewise, went down as restrictions ease. The underemployment rate went down by 17.3% in July, equivalent to 7.135 million underemployed Filipinos. It further decreased to 14.4% in October, translating to 5.747 million underemployed Filipinos.

Employment, on the other hand, jumped to 90% in July, translating to 41.306 million employed Filipinos, then inching up to 91.3% in October, representing 39.836 million.

The stock exchange, meanwhile, gradually bounced back with the resumption of business. Last December, it even rose to 7,200 level with investor optimism sparked with the impending rollout of a COVID-19 vaccine, which has been first approved and used in the United Kingdom. 

In trade, exports snapped its losing streak last September with a revised 2.9% growth. The following month, though, recorded a decline of 2.2% year-on-year to $6.202 billion. Imports remain contracted, with a 19.5% decline in October.

Projections

While the remaining figures are yet to be released, estimates are hinting on the country’s overall economic performance.

The government, through the interagency Development Budget Coordination Committee, expects the economy to shrink between 4.5% and 6.6%, or an average of 5.5%, this year.

Asian Development Bank, meanwhile, expects Philippines’ GDP to contract by 8.5%, the sharpest among its Southeast Asian neighbors such as Thailand (-7.8%), Malaysia (-6%), and Indonesia (-2.2%). The multilateral lender cites declines in household consumption and investment as reasons for its estimate.

Likewise, the International Monetary Fund sees the country’s economy to slide the worst among the region with an 8.3% GDP decline.

The World Bank, on the other hand, forecasts the GDP to decline by 8.1%, considering the GDP slump in Q3 and the damage by the stream of strong typhoons last year.