Recession Signals Need for Vigorous Reopening
The sharp decline of the Philippine economy in the second quarter is not totally unexpected. The harsh lockdown measures implemented in the April-to-June period across Metro Manila and the rest of the nation shuttered many business operations and put millions of Filipinos out of work.
The gross domestic product dropped 16.5 percent in the second quarter year-on-year. Simply put, the lower economic output during the period means factories, restaurants, malls and other industries were churning out less. The reduced production, in turn, means the economy employed less in response to the weak demand from consumers.
Household consumption, according to the Philippine Statistics Authority, dropped 16.5 percent in the second quarter as the prolonged pandemic lockdown and the impaired mobility of our workers curbed the spending power of consumers. It is very clear that many Filipino workers had little purchasing power despite financial assistance from the state.
Along with the 0.7-percent contraction in the first quarter of the year, the second-quarter slump officially put the Philippines into a recession. The economic slump, however, is not exclusive to the Philippines. The world’s biggest economies registered the same sharp decline in GDP output.
The United States, the world’s biggest economy, registered a second-quarter slump of 9.5 percent compared with the same period a year ago, the worst figure on record. Record contractions were posted in Germany (10.1 percent), Belgium (12.2 percent), Austria (10.7 percent) and Mexico (17 percent). France’s economy declined by a record 13.8 percent in the second quarter, Italy plunged 12.4 percent, Spain fell 18.5 percent and Portugal slumped 14.1 percent.
Unfortunately, the Philippines fared worse than its peers in Southeast Asia, where many implemented a more effective contact tracing strategy. The Philippines’s GDP fell 9 percent in the first six months of 2020 compared with a contraction of 1.2 percent in Indonesia, 6.5 percent in Thailand and 3.9 percent in Malaysia. Vietnam escaped the regional slump with a 2.1-percent GDP growth.
Our GDP numbers are not good in the second quarter but we may have seen the worst as we started reopening the economy. I share the cautious optimism of our economic managers after the gradual reopening of the economy.
Acting Planning Secretary Karl Chua has noted that while the decline in the second-quarter GDP was steep, signs of recovery were emerging. Government data support’s Mr. Chua’s observation. Manufacturing production, exports and imports are taking a U-turn from their rapid drop.
The volume of production index was -39 percent in April but improved to -19 percent by June. The second-quarter contraction averaged -29 percent, and Mr. Chua expects it to gradually recover in the coming months.
Exports and imports are also beginning to recover. Export shipments improved from -50 percent in April to -13 percent in June and averaged -30 percent in the second quarter. Shipments to China, one of the Philippines’ largest trading partners, improved from -55 percent in April to 2.8-percent growth in June.
“As China’s economy improves in the second semester, we can expect export growth to follow,” says Mr. Chua.
Imports, which are backing both household consumption and investment, are gradually recovering from a deep contraction of -65 percent in April to a slower drop of -25 percent in June.
Bangko Sentral ng Pilipinas Governor Benjamin Diokno shares Mr. Chua’s optimism. The economy tumbled largely due to the comprehensive lockdown during the quarter. But Mr. Diokno noted that economic activity has started to pick up as the government gradually reopened the economy.
It is time perhaps to reopen the economy further and move away from debilitating lockdowns that exacted a heavy toll on the economy, jobs, and livelihoods. We can aggressively reopen the economy and contain the spread of Covid-19 at the same time through a more systematic approach.
As I’ve written here before, we should impose lockdowns only on a localized or cluster level and further strengthen our contact tracing capacity. We can build similar isolation facilities in other major urban areas and large municipalities outside of the capital region to effectively contain the spread of Covid-19.
With widespread lockdowns, we are penalizing workers who have abided by health protocols. Let us give them a chance to reclaim their jobs and help in the economic recovery.