Is it the end of the world as we know it?
Only a handful of countries can claim to have been prepared for the COVID-19 pandemic. The Philippines is not one of them. When local transmission began, the government resorted to the only tool it had to contain the outbreak: the lockdown hammer. It used this to close government and business, offices and schools and even public transport. The economic cost was enormous, at P1.1 trillion, or 5.6% of GDP, for the 45-day lockdown.
In this time of extreme uncertainty, when past data offer little guide for the future, and policy responses are evolving quickly, forecasting becomes even more of an art than science. For this forecast exercise, we started with the Q2 lockdown, then visualized the economy under a “new normal,” and likely outcomes from government efforts to avoid a second wave of infections on one hand, and to revive the economy on the other.
The outlook is quite grim: a sharp contraction of 7% this year, with GDP not expected to rebound before 2022. Indeed, with masking directives, distancing protocols, borders closed and police checkpoints everywhere, the hit R.E.M. song from the 1980s continually replays in our heads.
We have been seeing a lot of a chart from the Economist, showing the Philippines ranking 6th among 66 emerging market economies in terms of public debt, foreign debt, cost of borrowing and reserve cover. The assumption has been that government has the fiscal space to do whatever it takes to counteract recession. Yet fiscal authorities have been quite restrained on the subject of fiscal stimulus. Indeed, fiscal authorities have a tough balancing act ahead. What they choose to do – and we think they have room to maneuver – will matter greatly for how well the economy will emerge from this crisis.
It appears that even President Rodrigo Duterte is suffering from lockdown fatigue. As soon as the ECQ in metro Manila was “modified” to let some businesses partly reopen, he invoked presidential exemption and flew home to Davao. Indeed, nobody expected the ECQ to last this long, nor how slow government would be to ramp up infection testing. We’ve had no word on how the pandemic may have affected Duterte’s approval ratings, but we may expect them to follow economic and social indicators. The deeper and longer the economic downturn, the greater the risk of more populist measures, and fear of a lame-duck presidency. Indeed, political analysts say the constant presence of senator Christopher Go at the president’s side during his regular COVID-19 press briefings is a sign that succession planning is ever on the president’s mind.
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