Market assessments: Hearing, heeding, and healing as one

Market assessments of the Philippine economy’s prospects for this year and the next, are commonly grim and underlined by pessimism.

Real GDP slipped by 0.2% in the first quarter 2020. It is expected to further decline in the second quarter.  For the rest of the year, some modest deceleration in recession is very likely. With a very low base this year, real output growth could easily bounce back to positive territory next year.

The National Government expects a -2% and -3.4% recession. International financial institutions and bank analysts are more pessimistic.

For instance, ADB projects real GDP at -3.8% (-2.3 to -5.3%), lower than the IMF’s -3.6% forecast. ADB cites the country’s strict lockdowns and the corresponding job losses totaling about 20% of the labor force, or about 7.3 million workers, as the basis. ADB claims that around five million Filipinos were pushed below the poverty line. It projects that consumption expenditure will definitely sag but that the “worse is most likely over now with the gradual opening of the economy.” With a possible bottoming-out in May 2020, based on indicators such as cement and vehicle sales, merchandise exports and imports, and the purchasing manager’s index, ADB concludes that for the Philippines, “recovery could be fragile (with a) protracted U-shape in 2020 and 2021.”

The IMF revised its modest forecast of the Philippine recession. When 2020 began, it announced a 0.6% growth forecast. Now, the IMF is looking at a 3.6% decline. It cites COVID19-related supply disruptions and weaker demand in the country’s major trading partners. The Fund also believes that in the Philippines, resolution of the pandemic would be gradual, and therefore, the economic hit would be more adverse as compared to other countries.

Credit rating giants, Moody’s and Fitch, are on the same wavelength. But their assessments differ on the extent of the downside.

Moody’s forecast is -4.5% real GDP for 2020. On a positive note, it expressed trust and confidence in the Philippines’ growth track record; prudent economic and fiscal management; and the robust banking system. Moody’s suggests that our strong buffers such as fiscal reforms and debt stabilization would serve us in good stead ahead. For this reason, Moody’s maintained our investment grade credit rating at Baa2, two notches below A3, with a sovereign outlook of “stable.”

Fitch was more ruthless in its assessment. While it expected the economy to slide by a smaller 4%, it nonetheless downgraded the credit outlook for some banks; assessed the near-term outlook for macro and fiscal as worse; and business conditions and profitability as weaker.

On the part of HSBC, private banking managing director and chief market strategist for Asia, Cheuk Wan Fan announced that “the economy will face the deepest downturn in 30 years. Currently, we project (Philippine) GDP to contract by 3.9% this year.” HSBC also cites pandemic restrictions for causing a steep downturn in private consumption and fixed investment. These two important drivers are projected to drag the Philippine economy into a deep recession.

These assessments and predictions are, sadly, not at all surprising.

Rather, what is baffling is how some segments of governance — specifically, Congress and the Health Department — do not seem to be acting on the grim forecasts with urgency. They would rather pick bones with social media posts and bloggers, actions not befitting a leadership who must guide and protect the people in a time of war and crisis.

We also stress that the duration and severity of the country’s variously labeled-lockdowns are a function of the weakness of our public health system and management. Our level of preparedness for any pandemic was considered lowest among the ASEAN 6. Among other indicators, that our health system is not close to fighting form was emphasized last April when Dr. Robert Dennis Garcia of the Makati Medical Center explained the need for an extended lockdown: “LGUs, hospitals, healthcare systems and the continuing education of our people are still far from ideal.”

Thankfully, the IATF did not heed the business sector’s advice to lift the quarantines much earlier. Otherwise, we would have even more infections and deaths given our abysmal capacities to test, trace, and treat.

Good thing, too, that we did not follow the World Bank’s suggestion of “sustained yet moderate social distancing — but not a lockdown.” Crowds in depressed communities and wet markets in both urban and rural areas truly discount the feasibility and effectivity of this suggestion. This prescription ignores that this pandemic assaults the many poor among us.

Gradual loosening of restrictions with specific safeguards and hygienic measures was thought to be sufficient to avoid the spread of the disease and limited resumption of economic activity. But even with these measures, infections and deaths now continue to rise alarmingly!

Consider the following: it took months before the Health department and the Food and Drug Administration gave the go signal to use the UP-developed test kits. Wasted was the golden opportunity to accelerate testing of suspected COVID-19 victims, and facilitate both tracing and treatment when infections were not as overwhelming as they are today.

If the situation were not so deplorable, we could just grin at Foreign Affairs Secretary Teodoro Locsin’s frank admission of the health sector’s ineptitude. On the lockdowns, he said: “Yes, it was wasted; that’s accepted by the IATF; partly paralysis, partly self-satisfied health bureaucrats — none competent…” While the Philippines was among the first to recognize the viral surge in January, Locsin argued that the problem was the Government “turned over the solution to health bureaucrats — the inert merchants of death.” Strong words from a co-equal member of the Cabinet. The irony of battling Presidential alter-egos!

We are wiser today and know that Sweden’s liberal approach did not prevent the upward march of the coronavirus. Herd immunity was not definitively established. Singapore and Korea had to re-impose lockdowns because of viral resurgence. Recent reports indicate that the virus continues to mutate. Immunity of those previously infected appears short-lived. No one can lightly dismiss COVID-19 as being just like the ordinary flu or pneumonia.

Vietnam’s pandemic management, though, is enviable. A Reuters account explained it well: “Vietnam was successful because it made early, decisive moves to restrict travel into the country, put tens of thousands of people into quarantine and quickly scaled up the use of tests and a system to track down people who might have been exposed to the virus.”

Vietnam did its homework early. With all of the preemptive measures, this nation of 95 million people supported the initial lockdown with quick fortification of its health sector. The Vietnamese were never left clueless and confused. Texts and various apps were leveraged by the Government to update civil society of daily progress in the battle against the virus. With less than 500 infections and zero deaths, Vietnam has all the basis for gradually opening up and accommodating business activities.

This was not done in the Philippines. Our health issue was addressed along military and police tracks with long lags and no leads.

Last April, The New York Times published a helpful study with criteria for reopening economies. The report was based on a study by health, law, security, and medicine experts — Scott Gottlieb, Caitlin Rivers, Mark McClellan, Lauren Silvis and Crystal Watson. It listed four guidelines for safe economic reopening:

1. Ability of hospitals to treat patients without assuming a crisis level of care;

2. Ability to promptly test everyone with symptoms;

3. Ability to effectively monitor confirmed cases and contacts even through cell phones; and,

4. Visible, sustained reduction of infection for at least 14 days.

It is obvious that these are all health parameters in the hands of health authorities and of Congress which holds the purse strings of the budget. With greater commitment and focus on the mandate to safeguard public health, economic recovery would be less complicated.

Will the country’s economy amount to something in 2020 and 2021?

Secretary Sonny Dominguez assures that “the Philippines has wielded enough fiscal space ahead of the deepening coronavirus crisis.” Whether this could indeed allow the Government to spend big on its strategy would be up to Congress. Implementation, decisiveness, and strategic management of public health must be carried out by a more competent Health Department.

Market assessments paint grim scenarios for the Philippines. Congress, and other line agencies must hear, heed, and address them AS ONE. Hearing and heeding these assessments and suggestions as one is a necessary and indispensable prerequisite for healing as one.

Otherwise, it is merely rhetoric and just a catchy slogan.

Diwa C. Guinigundo is the former Deputy Governor for the Monetary and Economics Sector, the Bangko Sentral ng Pilipinas (BSP). He served the BSP for 41 years. In 2001-2003, he was Alternate Executive Director at the International Monetary Fund in Washington, DC. He is the senior pastor of the Fullness of Christ International Ministries in Mandaluyong.