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.

Digital redefines consumers’ transactions, but physical channels are expected to blend in

As an avid shopper, Queenie Boado, a third-year law student, used to shop in malls on a weekly basis before the pandemic. For her, shopping helps relieve the stress from both work and school.

Then came the quarantine, and she swiftly turned to online shopping. “Not only it is convenient; it’s much safer than the usual mall shopping. It saves time and has better prices too,” Ms. Boado told BusinessWorld via online correspondence.

Since the coronavirus disease 2019 (COVID-19) came into the country last year, consumers suddenly have shifted from physical means to online ones. As many stayed at their homes during the quarantine, they have turned to online platforms to shop for items. Online channels of banks and electronic wallets, likewise, have been further tapped to pay and transfer money.

Now, as the ‘new normal’ proceeds under less strict quarantine, going digital in terms of shopping and banking is being integrated into Filipinos’ lifestyles in the long term.

In the earlier periods of the quarantine, malls limited their operations to essential stores such as supermarkets and groceries, leaving most brick-and-mortar (B&M) stores closed. This left retail losing a vital channel of reach and revenue.

“The prolonged lockdown has shown up in the reduced revenues of almost all retailers. Sales have dropped between 50-80% from pre-pandemic levels,” Roberto S. Claudio,  a vice-chairman of the Philippine Retailers Association (PRA), was quoted as saying in a year-ender report of BusinessWorld last December.

Mr. Claudio also stressed that while online sales increased from 100-500% from online capable retailers, it was not enough to cover for the lost sales in B&M stores.

Growth in e-commerce

Nonetheless, the e-commerce trend has visibly boomed as consumers shifted their shopping online.

As Oxford Business Group (OBG) cited in their “Philippines 2021” report, a survey by creative agency We Are Social and social media management platform Hootsuite in July 2020 revealed that 78% of Filipino consumers had made an e-commerce purchase. This is 4% higher than the firms’ figures in January 2020, a few months before the March lockdown. 

Also, Kantar Philippines’ most recent quarterly FMCG Monitor reports showed steady progress in using online channels in spending for fast-moving consumer goods.

While direct sales were found to be hard hit, the share of online channels thrived in June 2020, with 27% change in year-to-date (YTD) compared to 2019. Last September, this share grew to 48% significant growth in YTD compared to 2019.

Raymund Alimurung, chief executive officer of Lazada Philippines, observed that the pandemic has served as a tipping point for e-commerce.

“It’s a little bit morbid to say, but the pandemic has been the best advertising for e-commerce. It’s not something out of desire, but out of necessity,” Mr. Alimurung said during the BusinessWorld Virtual Economic Forum last November, adding that many who have been exposed to e-commerce during lockdown are now realizing its convenience.

For Ms. Boado, the pandemic has pushed her further from shopping in physical stores to shopping online. “Prior to the pandemic, I’ve already been an avid fan of shopping online since I can easily compare prices of products from different shops; read their reviews; [and] get cash backs, coins, and vouchers. Plus, the thought of waiting for the package to arrive right at my doorstep excites me,” she shared.

E-commerce’s potential, B&M’s return

Compared to its Asian neighbors, however, more room is still seen for e-commerce to grow in the Philippines and in Southeast Asia. A report by Kantar Worldpanel Division Asia shows that the adoption rate of e-commerce in the region is “still limited to 1 in 10 households”. Moreover, the penetration rate of e-commerce in the Philippines is 7.3% last September, way behind the numbers of its neighbors like China, Korea, and Taiwan. 

On the bright side, about 70% of Filipinos surveyed said they shop online because of epidemic concern, and 50% claimed they will shop more online.

In addition, OBG’s report mentioned a survey by Visa indicating that “73% of Filipino consumers are likely to sustain or increase their pandemic level of online shopping once restrictions are eased”.

Online shopping, while continuing to break ground in the country, is bound to be permanent among consumers. Yet, hope is still seen for B&M stores and, especially, malls, which fully reopened since June.

“I personally do not see online retailing completely taking over from in-store retailing. Retailing as an industry will become omnichannel,” Mr. Claudio of PRA was quoted as saying, adding that developing digital infrastructure will be an agenda for retailers who do not have it yet and opening showrooms with digital hubs is a possibility for e-commerce shops.

Mr. Alimurung also expects consumers to return to malls as markets open up. With e-commerce gaining traction during its ‘trial period’ during the lockdown, nonetheless, the trend will continue in the months ahead.

“[W]e expect to see [e-commerce penetration] growing. We see that in the types of brands boarding [and] the daily users that are going on [our platform]. These trends will just don’t go any other way,” he said.

Meanwhile, Lorenzo C. Formoso, also a vice-chairman of PRA, believes that the future of retail will rely on the developing response to the pandemic. “[T]his ‘new normal’ is not really normal until the advent of the vaccines and quick tests,” Mr. Formoso said in the latest World Retail Congress report. “We must remain optimistic as new developments are already taking place.” 

Acceleration in digital transactions

At the same time, shopping has gone further online for many consumers, digital channels have been further used by more individuals than before for transactions.

Ms. Boado shared that her online transactions increased since the pandemic. “I’ve transacted more, twice or even thrice than my usual transactions before the pandemic since most banks waived their convenience fees. This is really my preferred payment method not only for my purchases but also for paying bills and doing money transfers,” she said.

It has been stressed multiple times in the previous year that the country’s transition to cashless banking and electronic payments, or e-payments, has accelerated due to the pandemic.

In a fireside chat in the BusinessWorld Virtual Economic Forum, Bank of the Philippine Islands (BPI) President and CEO Cezar P. Consing observed firsthand the surge in digital transactions.

“The thesis that COVID accelerated cashless society is true,” Mr. Consing said. “It was all very slow at first, very gradual, incremental growth. All of a sudden, we saw daily digital enrollments from our customer base to the tune of 20,000 to 30,000 a day. Because of all of these enrollments, more than half of our 8-9 million customers are now enrolled digitally.”

The BPI president also noted that the bank’s transactions by volume done through ATMs, online, or mobile grew from about 70% pre-COVID to over 90% upon the start of the lockdown. Physical branches still account for the bank’s bulk of transactions in terms of value, he continued, but the volume of branch and ATM transactions remained lower than pre-COVID levels.

Data from Bangko Sentral ng Pilipinas (BSP), meanwhile, showed big increases in the value and volume of e-payments facilitators PESONet and InstaPay.

According to the central bank’s governor, Benjamin E. Diokno, the value of PESONet jumped 100% year-on-year, while the value of InstaPay increased to almost 400% for the first eight months of 2020. In terms of volume of transactions, PESONet increased by 130%, while InstaPay jumped by 624%.

“This is truly excellent news. As governor of the BSP, one of my personal goals is to have not less than 50% of transactions, by volume and value, to be done digitally by 2023. With the pandemic, I am optimistic that this goal will be met even sooner,” Mr. Diokno said during the Digital Banking Asia webinar last November.

Advancing the ‘cash-lite’ vision

Pushing further Mr. Diokno’s vision of a cash-lite economy in the country, BSP unveiled last October its Digital Payments Transformation Roadmap 2020-2023, which intends to set out initiatives and strategies for advancing an “efficient, inclusive, safe and secure digital payments ecosystem.”

The roadmap targets to strengthen preference for digital payments by digitizing half of the total volume of retail payments and by expanding the number of the financially included to 70% of Filipino adults. It also aims for BSP to improve access to more innovative digital financial products and services.

These objectives are intended to be met by developing digital payment streams to accelerate wider acceptance, establishing the necessary digital finance infrastructure to facilitate interoperability in the digital payments ecosystem, and implementing digital governance standards to safeguard the integrity and privacy of consumer data.

Alongside this roadmap, Mr. Diokno continued in his speech, BSP sets to pursue more digital payment initiatives in the near term. One of these initiatives is extending the QR Ph use case from only person-to-person (P2P) payments to person-to-merchant (P2M) payments. 

“Since accepting payments via QR is simple and affordable, it is expected to benefit not only large business organizations but also the small unbanked vendors such as peddlers, sari-sari store owners, and other entrepreneurs,” Mr. Diokno said.

Other initiatives include simplifying bill payments through a “one bills payment facility”, streamlining payments between businesses and consumers through the “request to pay service”, and making recurring payments less hassled through a direct debit use case.

The central bank is also proactively building a conducive regulatory environment for digital innovations, primarily digital banks. Late November, BSP’s monetary board approved the recognition of digital bank as a new bank category that is separate and distinct from the existing bank classifications.

“Digital banks will play an important role in the digital financial ecosystem. We see these banks as additional partners in further promoting market efficiencies and expanding access of Filipinos to a broad range of financial services, bringing us closer to the realization of our target[s],” Mr. Diokno said in a separate statement.

Blended banking

For its conveniences and efficiencies, coupled with strong support from the BSP, digital banking and electronic payments are expected to be a permanent feature for consumers in the new normal.

For Ms. Boado, online transactions will be a permanent fixture in her routines. “In this time and age, almost everything is within reach and can be done with a single tap — even available 24/7,” she shared. “Convenience will always be my top priority, so doing transactions online will surely be my long-term option.”

For Mr. Consing, there is no going back to analog means of banking for many. Yet, he looks forward to a hybrid of analog and digital for banking moving forward.

“Come the vaccine, I think it will be a combination of high tech [and] low touch,” he said, stressing the term “phygital”, or physical and digital combined.

“The volume of digital transactions is high, but the bulk of the value is still being supplied by the branches. Over time, that value in digital transactions will also grow a lot, so [it] will create as much value, if not more, than the physical,” he added.

Telcos, transportation, logistics see positive, digital-driven outlook

Connectivity has become more crucial when the coronavirus disease 2019 (COVID-19) pandemic restricted mobility. It halted public transportation for some time and disrupted logistics amid its continued operations, while pressing telcos to improve their services to meet a spiking demand.

With the economy proceeding into the new normal amid the ongoing battle against the pandemic, the reshaped telecommunications, transportation, and logistics sectors are expected to meet increased and intensified demands among consumers.

Addressing Internet issues

As the pandemic forced many to shift to remote work, online learning, and cashless banking, among others, it has further stressed that Internet connectivity is no longer a luxury but a necessity. 

Ndiame Diop, World Bank’s (WB) country director for Brunei, Malaysia, Philippines and Thailand, regards Internet connectivity as the foundation of the digital economy. The problem, however, lies in the lack of digital infrastructure.

“Internet connectivity… is limited in rural areas, and where they are available, services are relatively expensive and of weak quality,” Mr. Diop was quoted as saying in a statement from the National Economic and Development Authority (NEDA), which partnered with WB in a recent report on digitalizing the Philippine economy.

“Upgrading digital infrastructure all over the country will introduce fundamental changes that can improve social service delivery, enhance resilience against shocks, and create more economic opportunities for all Filipinos,” Mr. Diop added.

Figures cited by NEDA and WB’s joint report show that the country’s mobile broadband speed is at 16.76 megabytes for second (mbps), much lower than the global average of 32.01 Mbps. 3G/4G mobile average download speed, meanwhile, stands at 7 Mbps, nearly half below the 13.26 Mbps in the entire Southeast Asian region.

Addressing these slow speeds is among the issues the telco industry has been tackling since the onset of the pandemic. With the Bayanihan to Recover As One Act simplifying the permit process for building cell towers, telcos are looking forward to better connectivity in remote areas.

“It is a real window of three years [of ushering] in a very real ‘Build, Build, Build’ for telcos and digital infrastructure,” Gil B. Genio, chief technology officer of Globe Telecom, Inc., stressed in a BusinessWorld Insights forum last September.

He added that if the country can build about 50 to 60 thousand cell towers in the next three years with the help of independent tower companies, coupled with intense competition among present players, “we will actually get to a decent kind of penetration for mobile Internet”.

In addition, Alfredo S. Panlilio, president and CEO of PLDT, Inc.’s wireless arm Smart Communications, Inc., noted that because of the pandemic, opportunities have opened up for the digital ecosystem to improve. As digital is further employed across industries, demand for Internet connectivity is expected to continue after the pandemic.

“Connectivity is best positioned as a frontline need for a very long time, and our goal for the near future is clear. We will continue to uphold customer centricity and adapt to various changes in the consumer mindset, having a good understanding of the way people live, work, play, and entertain themselves in this new normal,” Mr. Panlilio said during the BusinessWorld Virtual Economic Forum last November.

Transportation for individuals

As mobility has gradually revived after months of strict lockdown, transformation in transportation is observed, with an appreciation for ‘individual mobility’ and the push for transit-oriented developments (TODs) taking the lead.

Christophe Vicic, country head of JLL Philippines, proposed in the same online forum that TODs serve as one of the answers to the country’s transportation issues and, eventually, help direct the country towards improved connectivity.

“We’ll never be going back to [what was] before, but there will always be people transiting,” Mr. Vicic said, adding that TODs will attend people in transit by cutting commutes and reducing household spending.

As Mr. Vicic explained, TODs are characterized by walkable designs that prioritize pedestrians, train stations as a prominent feature, with public squares fronting these stations.

With these features, among others, TODs are set to be sustainable and eco-friendly, responding to ‘the clear message from the pandemic’: “We want a safer and healthier space to work and live, but we also want a healthier and safer way of working and living,” he said.

In addition, the pandemic has driven a rediscovered appreciation of individual mobility, according to Dr. Ting Wu, a partner of McKinsey & Company China. 

“There’s going to be a balance. [We] believe the long-term transport, especially in major urban areas, [will] have a hub and spoke model where you have public transportation as the backbone,” Dr. Wu added.

“We do expect the world, across different geographies, to have a significant change of landscape in terms of transportation modes. Some are gearing more towards public transportation, some towards electric transportation, [while] some are towards shared micro-mobility,” he continued.

E-commerce boosting logistics

With an uptick in e-commerce, which is nonetheless enabled through connectivity, logistics is seen to support this trend. Steady growth is hence expected for the sector.

“[T]he logistics industry is one of the luckiest sectors, because there is still growth in that segment, and that’s because of the growth in e-commerce,” Sheila Lobien, executive officer of Lobien Realty Group, said in a BusinessWorld B-Side podcast last September.

She added that the sector is projected to grow by as much as 9% in the next three years, having observed that warehousing facilities and logistic support is needed to complement the growth in e-commerce.

Martin Cu, country head of Ninja Van Philippines, shared in the BusinessWorld Virtual Economic Forum what logistics will turn out to be post-COVID.

He sees an increasing client base in logistics, with more micro, small, and medium enterprises who are selling socially coming in. The sector is also expected to innovate delivery processes (e.g., same-day deliveries) while elevating safety protocols.

Moreover, Mr. Cu expects logistics to provide online sellers with business solutions that will meet their changing needs.

“We recognized that within Southeast Asia and across the sister countries that we have in Ninja Van, we can actually help by connecting our various sellers across this ecosystem and allow them to resupply very seamlessly,” Mr. Cu explained. “We have seen that that has been very valuable for a lot of shippers in terms of maintaining their businesses and their supply chain.”