GDP: Down, down, down
Finance Secretary Carlos G. Dominguez III has always been known for saying it like it is. When he announced a 16.5% decline in the country’s second quarter GDP (gross domestic product) (in real terms, at 2018 prices) compared to last year — the news was shocking, but at least comfortably acceptable because it came from Mr. Dominguez. This is the worst contraction of the Philippine economy since 1981, during the debt crisis in the time of Ferdinand Marcos’ Martial Law. The country is now undeniably in a recession.
Bloomberg earlier estimated a less jarring 9.4% contraction of the Philippine economy for the second quarter, based on the forecasts of 21 reputable economists surveyed. Local economists earlier estimated that GDP at year end will have declined 2% to 3.4%, while now the Department of Finance (DoF) has determined shrinkage to be at 5.5% for the whole of 2020. For the first half of the year, the economy had already collapsed by 9%, the National Statistics Office (NSO) announced in a briefing last week.
“What went wrong?” economist Solita Monsod asked in her column in the Philippine Daily Inquirer. “The magnitude of this contraction was not at all expected by those monitoring us, as well as by our economic managers. In April this year (well into the pandemic), the IMF and the ADB projected that the Philippines would grow by 0.6% ( IMF) and 2% (ADB). Of course, these projections are based on certain assumptions, but it is important to note that they both projected positive growth. Two months later, the World Bank’s June 2020 Global Economic Prospects placed our growth at -1.9%, nowhere near our first- semester contraction.”
Dr. Monsod could not resist making a jab at the Administration for spending “precious time and attention on things like the Anti-Terrorism Act of 2020 and the franchise of ABS-CBN” while it was “too little, too late” for the “social amelioration fund giving from P5,000 to P8,000 each to 18 million families, which has not even all been disbursed as of end July.” And the P10,000 to P16,000 over more than a three-month period bridging for the unemployed or employed but not working might not ever even be felt, as President Rodrigo Duterte had declared in his State of the Nation Address (SONA) at end July: “Wala na tayong pera” (We have no more money).
Presidential Spokesman Harry Roque was quick to explain that the 16.5% GDP decline was by force majeure thanks to the coronavirus lockdowns. But in the tug-of-heart between lock-down and relaxing of quarantines, economic plans and stimulus schemes must wait on the unpredictable tantrums of a virus that will not just yet leave. The number of COVID-19 cases has risen more than six-fold since restrictions were eased in
June, making the Philippine outbreak the second-largest in Southeast Asia, Bloomberg notes.
Secretary Dominguez said in a public economic briefing that the slump would have been deeper at 11.5% (instead of established 9%) for the semester if the government did not boost spending, CNN Philippines reported. “Government spending was the only segment which substantially grew year on year. Household consumption — the backbone of the economy — emerged as the biggest dampener as lockdowns kept people at home and spent less,” the economic team acknowledged at last week’s public briefing.
“Record-high unemployment and a steep decline in money sent home by Filipinos have weighed on private consumption, which drives roughly two-thirds of GDP,” Bloomberg said in its dissection of the 16.5% GDP decline. “The economic cost of trying to contain the virus is leaving large scars to household and corporate balance sheets, which will weigh heavily on demand for many months to come,” analyst Alex Holmes of Capital Economics wrote. “A failure to contain the virus, continued restrictions to movement and inadequate policy support mean the Philippines is also likely to experience one of the region’s slowest recoveries.”
So far, the country’s second quarter slide is the worst when compared to neighboring Indonesia (-1.2%), Singapore (-6.5%), and Vietnam (2.1%), Dominguez admitted. Though he did not allude to it, the comparative size of the stimulus packages of ASEAN countries may not have a clear connection to economic recovery (or less decline), as many economic analysts (or some self-interested economic brokers) pitch for. The DoF had rejected the original proposed stimulus package of P1.3 trillion saying that the amount legislators were proposing would require new revenue sources, which are “very limited” because multilateral lenders and the bond market, for example, and are not readily available in this pandemic scenario. The economic team is anticipating the passage of the reduced P140 billion Bayanihan to Recover as One Act, saying it will help boost economic activity and provide help to the worst hit sectors, which in turn should (be enough to) usher in a rebound to growth come 2021.
We must appreciate the candor of the DoF as to our realities. We remember how candid and forthright Secretary Carlos Dominguez was in 2018, when he “warned lawmakers that foreign
investors would flee if they are not given a clearer picture of how the economy and its features would look like under a federal system of government” (Rappler, Aug. 15, 2020). Dominguez said the draft charter for federalism did not specify a clear mechanism of paying for national expenses and debt, and how to fund national agencies, personnel, and the military under federalism. Then-Socioeconomic Planning (NEDA) Secretary Ernesto Pernia likewise objected to the federalism draft for the unclear flow of revenues and expenses from central to federal regions and vice-versa, and thought it would “wreak havoc and disrupt the economy’s growth momentum.” At least seven major business groups in the country backed the economic managers’ stance on the matter, Rappler said.
At that time, Fr. Ranhilio Aquino, Consultative Committee member of the Con-com for charter change and Dean of the San Beda Graduate School of Law, said “(Duterte) should sack Dominguez and Pernia or command them to keep their traps shut. Freedom of expression does not apply to Cabinet officials in respect to policy” (Oscar Lagman in BusinessWorld, Aug. 20, 2018). Presidential Spokesman Harry Roque clarified that Dominguez was not against federalism but only commented on the draft charter. The legislative discussions on the shift to federalism soon died down, and Pernia stayed on before resigning in April this year, during which time the COVID-19 pandemic clearly single-handedly “wreaked havoc and disrupted the economy’s growth momentum.”
The NEDA under Pernia estimated that the COVID-19 spread’s overall economic impact across various sectors could be as much as P428.7 billion to P1.355 trillion in foregone revenues, equivalent to 2.1% to 6.6% of GDP; and as much as 116,000 to 1.8 million in employment reduction. The COVID-19 emergency was expected to reduce the Philippines’ real GDP growth to -0.6% to 4.3% in 2020 (GMA News Online, April 17, 2020). Pernia resigned “due partly to personal reasons and partly to differences in development philosophy with a few of my fellow Cabinet members,” in his own words (Ibid.).
Going back to the analysis of Ms. Monsod: it would be impossible, with the latest announcement of a 16.5% decline in the country’s second quarter GDP, to achieve a positive GDP growth at year-end unless miracles happen, and we have high positive growth rates in the last semester to bring the cumulative GDP year end growth to the new projected 5% 2020 growth.
But the COVID-19 pandemic is still fever-hot, not only in the Philippines but around the world. Our reality is still the quarantine, sometimes downgraded, sometimes upgraded. The vaccine, still waiting to be developed, has controlled planning parameters and stifled assumptions for economic forecasts.
Perhaps we should not even lose equanimity worrying about the hemorrhagic decline of 16.5% in GDP. Our government must selflessly, apolitically, plan and implement a defined program for alleviating the contagion of COVID-19. Then GDP will improve, as it did for other countries with more effective health plans for their people.