A global recession has been brought by the COVID-19 pandemic. In its latest Global Economic Prospects Report, the World Bank (WB) said in June that the global economy will shrink by 5.2% in 2020, representing “the deepest recession since World War Two.” Developed countries’ economic growth will decline 7%, and that of emerging markets and developing countries by 2.5% — their first contraction as a group in at least 60 years. Per capita incomes will fall by 3.6%, pulling some 60 million people down into extreme poverty, the report said.
Just two months before, in April, the World Bank-International Monetary Fund (IMF) said the global economy would lose $9 trillion, a contraction of 3%, in 2020. How virulent COVID-19 has been for the world economy that the IMF’s projected GDP growth estimates almost doubled in the decline in two months! “A partial recovery is projected for 2021,” the IMF said. “But the level of GDP will remain below the pre-virus trend, with considerable uncertainty about the strength of the rebound.” Advanced economies will not get back to their pre-virus peak until at least 2022.
The World Economic Outlook released by the IMF in January showed a revised estimate of “2019 global GDP growth which slowed down to 2.9% to 3.3% in 2020 and 3.4% for 2021 — compared to the October WEO.” The trending decline of GDP growth in the major economies in 2019 was already symptomatic of the world recession, which burst like the coronavirus and bloated with it in the sepsis of physical lockdowns and the resultant economic standstill.
Facing the wanton fury of the COVID-19 pandemic, economics is merely a cowering spectator, waiting to clean up after the tempest. With apologies to the IMF for all its efforts, there are no numbers that can be called out for GDP growth, or other econometrics and indicators, as we face this combined economic and health threat. As any researcher indulging in plain curiosity or for academic study would know, the numbers culled from assumptions will depend on the probabilities of those assumptions using pessimistic, status quo, or optimistic scenarios. This coronavirus pandemic will stay on until a vaccine will have been found, probably in two years according to scientists, so the unstable economic numbers will persist as well.
By April 5, there were 1,201,591 total confirmed COVID-19 cases in the world, with 64,703 deaths (a mortality rate of 5.38%) and 246,198 total recoveries. As of July 11, there were 12,674,947 cases of the coronavirus in the world, with 563,920 deaths (a mortality rate of 4.45%), and 7,402,652 recoveries. Cases have multiplied tenfold in the intervening three or so months, while mortality decreased by almost one percent. The recovery rate increased from 20% in April to 58% in July.
As of July 11, there are 54,222 coronavirus cases in the Philippines, from the 3,094 confirmed cases in April, or close to an 18-times increase in the intervening months. In the April 5 tally of Johns Hopkins Hospital, the Philippines suffered 144 deaths compared to 1,372 deaths as of July 11, with the mortality rate of 4.65% in April going down to 2.53% in July. The recovery rate in July is at 25% (14,037), much improved from the 37 cases or a pitiful 1% that recovered in April.
Numbers are most comforting when showing improvement. But in the anxiety caused by the unknown, minds wander, developing suspicions and insecurities about how improvements can happen, after becoming conditioning to the idea of a bleak two years ahead of continued restrictions. For fragile human nature, it might even be better to receive bad news first before good news, to brace against the worst, and to force a focus on what can be done to recover and build a new life. For that’s it: almost everything has to be new, as in a resurrection after the world’s coronavirus purgatory.
The economics of the pandemic will need planning and rebuilding at ground zero. It might not be useful or logical to track GDP growth or decline as these are based on the past and trending of comparative macro (country) or micro (business, individual) performance — that is all gone into compartmented history. Rather than the romantic vow to “rebuild,” the more pragmatic plan might be to simply “build new” — a paradigm shift.
“Hardest hit (by recession) are those countries where the pandemic has been most severe and where there is a heavy reliance on global trade, tourism, commodity exports and external financing,” the IMF June report said. Economic planners and individuals designing a new lifestyle for themselves have best to take hints from that very basic enumeration of the economic activities that suffered most.
Should the Philippines not think of weaning itself away from its heavy dependence on imports, especially rice and other cereals, whose importations grew by 72% in May 2019 (psa.gov.ph)? Agriculture must be a primary economic activity. We should review our strong dependence on exports of fruits and agricultural products, as these perishable goods have become expensive for the local market. And should we rethink the generous exports of copper and other metals, growing to almost 200% combined in the same period? Cost-benefit analysis will fine-tune this, but extra prudence might prevail for mined products as national wealth.
About 10% of the country’s population works abroad. As of 2018, a total of $25.8 billion was sent home by OFWs contributing 10% to 11% to GDP. Most have lost contracts because of the economic downturn caused by COVID-19 in their host countries. Perhaps most OFWs will have to re-tool and think of new endeavors, helped by the guidance and training of the Department of Trade and the Department of Labor.
Business Process Outsourcing (BPOs) contributed 12% to 15% to the country’s GDP in 2018. Performance in this industry will not be as stellar thanks to the necessary downsizing of the foreign businesses that, pre-COVID-19, had counted on lower outsourcing costs of off-site Filipino workers. Should not the displaced BPO workers be harnessed for boosting local industries, specially the IT industry, in the present safe haven of online business?
Should we hurry to re-open and revive the tourism industry when few people are traveling, thanks to the social distancing required under modified virus restrictions? Cruises and airline tourist travel have been zero thanks to the quarantines, and demand will probably not revive to its former vigor because of fears of future similar health threats. Other services like live entertainment will be in less demand after the coronavirus quarantines, when entertainment was safely provided on the internet.
Finally — debt. The IMF particularly warned against “external financing” of country deficits. Excessive debt bodes our being economically shackled even beyond release from a recession. Current debt to GDP benchmark ratios cannot apply anymore after the devastation of the coronavirus that has cut global GDP growth to negative. Best to live with what one has.
And that would apply to personal finance. Why must a developing country like the Philippines continue to be a consumer-driven economy like the big countries, in fake abundance abetted by profligate credit? Again, one must learn to live with what one has. Better yet, to uphold the old value of saving for a rainy day — like a coronavirus pandemic.
COVID-19 has given good advice on GDP numbers and economics.
Amelia H. C. Ylagan is a Doctor of Business Administration from the University of the Philippines.