Restarting economic activity

PHILIPPINES - In Brief 27 Jun 2020 by Romeo Bernardo

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We noted in our last brief that: (a) the surprise 50bp monetary policy rate cut reflects authorities’ increased worries about weaker economic growth; (b) multilateral agencies’ updated forecasts this month for 2020 GDP growth, i.e., -1.9% for the World Bank, -3.8% for the ADB and -3.6% for the IMF, are on the optimistic side compared with our view of a 7% GDP contraction, which (c) we still think reasonable considering observed difficulties in restarting economic activity post-ECQ, in line with distancing protocols. We now expound on the last point.Most areas in the country, including Metro Manila, were eased out of enhanced community quarantine (ECQ) into a more relaxed general community quarantine (GQC) at the start of June. Since then, activity has steadily picked up under carefully calibrated policies to maintain distancing protocols at the industry level while keeping the elderly at home (see chart below). However, two particularly problematic areas where solutions require a level of organization and management largely absent in concerned public institutions have highlighted key constraints to jumpstart domestic demand.First on the supply side, government has set a general 1-meter physical distancing protocol that applies to say, factories, workplaces and retail outlets, which has the effect of capping output of these businesses below potential. Nowhere is this more evident than in public transport, particularly on Metro Manila’s roads where high congestion and jampacked commuter rails and public utility vehicles were already daily headaches pre-covid19. Public transport services, mostly operated by private firms, have been allowed to resume under GCQ but are stri...