Health is priority, but govt must also do more for economy

ON Monday, two major economic monitors again cut their growth forecasts for the Philippines, which should not have come as a surprise to anyone, but what may seem extraordinary at this point is that anyone is still optimistic that there will be actual economic growth of any sort this year. As much as we would like to share that optimism, we believe that it is entirely misplaced.

While protecting public health is — and absolutely must remain — the top priority, the government and the country as a whole should be preparing for what appears to be an inevitable economic recession, one that may be painfully deep. It is important to give some thought to this longer-term issue now so that the great amount of effort and resources that will be directed toward bringing the coronavirus disease 2019 (Covid-19) epidemic under control will not have been spent in vain.

S&P Global Ratings and Fitch Solutions, which is part of the Fitch Group, both reduced their gross domestic product (GDP) growth forecasts for the Philippines for this year, citing disruptions brought by the spread of Covid-19 in the country.

S&P lowered its forecast to

4.2 percent from its previous

5.8-percent estimate, while

Fitch cut its outlook to 4.0 percent from 6 percent.

Both forecasts are the slowest growth foreseen for the Philippines since the 3.7- percent expansion in 2011 and both are far below the government’s original target of

6.5 percent to 7.5 percent

GDP growth for 2020. As recently as two weeks ago, prior to the imposition of the “enhanced community quarantine” over Metro

Manila and the rest of

Luzon, Bangko Sentral ng

Pilipinas Governor Benjamin Diokno suggested that the economy could still grow at 6 percent this year, provided the Covid-19 crisis was brought under control by mid-year.

In their latest outlooks, S&P and Fitch Solutions said its estimates had taken into account the impact of the global pandemic on tourism, remittances from overseas Filipino workers, global supply chain disruptions and “weakening” foreign direct investment inflows. What both forecasts largely overlooked, although for its part Fitch Solutions did at least make note of it, is the crushing impact of the effects of the lockdown.

Those effects cannot be overstated. According to government data, Metro Manila alone is the source of approximately 34.6 percent of the national GDP; the whole of Luzon, including Metro Manila, accounts for 71.5 percent of GDP. Although detailed data will not be available for some time, our estimate of the decline in economic activity across Luzon, based on the known number and types of businesses still operating versus those who have suspended activities, is approximately 70 percent.

A one-month lockdown of Luzon, therefore, results in a 4.17-percent reduction in GDP for 2020. Given that the lockdown may yet be extended in scope or duration and that some reduction in economic output has already occurred in other parts of the country, the reduction in GDP will almost certainly be more than that. It will be reduced further by the slower pace of already limited consumer spending as the lockdown goes on, simply because households will have progressively less money to spend as resources not being replaced by regular incomes are exhausted.

We are not so proud of ourselves that we would not be ecstatic to be proven wrong, eventually, but as things now stand, a recession — defined as at least two consecutive quarters of negative GDP growth — of 1 percent or more appears inevitable. While, again, the government’s primary efforts should still be directed at the immediate public health needs and emergency relief to weather the current crisis, it also needs to be considering substantial ways to fight the economic aftermath of the epidemic. If it does not, we fear that much of the effort put toward defeating the Covid-19 epidemic will be practically wasted.