The Philippine government’s penchant for lockdowns, the longest and harshest globally during this pandemic, was one thing that did the domestic economy tumbling down saved for the lone positive economic indicator: low inflation.
This was stressed by Prof. Eric Soriano during a webinar with the Philippine Chamber of Commerce and Industry and W+B Advisory Group on the topic “Closure is Never an Option: Now is the Time to Turn Your Business Around”.
Soriano, a World Bank/IFC Governance Consultant, said the hard lockdown, the most stringent and highly restrictive and longest around the world, only showed that the “cure was worse than the disease.”
“Yes, we were able to save lives but now that it has gone worse we are saving livelihood and this is impacting the industries,” he said.
The case of the matter, he said, is that the MSMEs are the hardest hit. MSMEs account for 98.57 percent of all businesses in the country, contribute 40 percent of GDP and 70 percent of workforce.
The ASEAN Business Turnaround Advisor & Family Business Coach even pointed out that PCCI, the symbolic voice of business in the country, has 30 percent of its member businesses on the brink of collapse.
The Philippines has broken records for unemployment. “Nothing of that sort during the time of Marcos, during the time of FVR (Ramos),” said Soriano, who pointed out that the highest on record then was around 14 percent because of the power crisis.
“But nothing on record that brings us to 17.7 percent and it is climbing all the way to the 20s so this is a big factor.” He said the unemployment rate could possibly climb to 25 percent. This he blamed to the job killer lockdowns, the longest globally and one of the strictest. He expects unemployed to shoot up to as much as 20 million Filipinos.
The second economic indicator, he said, the Duterte administration’s Cabinet economic cluster should be watching about is the external debt to GDP ratio.
Soriano said this too caused the economic collapse of the Marcos era where the external debt to GDP ratio was at a whopping 77 percent.
“We are now 50 percent, a few more and we would be hitting the record,” he said.
“These are a precursor to a risky ratio,” he warned noting that the government’s stimulus package is also a combination of internal and external borrowing.
“If we continue to borrow externally, our external debt to GDP ratio will be high and our ratings will slide from the stable to unstable,” he said.
Thus, he said, Finance Secretary Carlos G. Dominguez is closely watching this ratio because the moment this goes up it would be tough for the domestic economy.
Already, latest GDP ratio has broken the Marcos era record with 16.5 percent drop in GDP in the second quarter this year.
But what saved the Duterte administration is the low inflation that took out the Marcos era, said the professor.
The headline inflation climbed 2.7 percent in July, faster than the 2.5 percent in June and 2.4 percent in the same month last year. But despite the uptick, the July inflation remained within Bangko Sentral ng Pilipinas’ forecast range of 2.2 percent to 3.0 percent.
“Our inflation has remained unscathed,” said Soriano.
Despite the low inflation level, Soriano said, “We are headed to our deepest economic recession in 40 years.”
“What we are currently experiencing is nowhere near what we are experiencing in the next six months,” he warned.
The gradual reopening of the economy though will naturally help improve the GDP figure. “So, do not be deceived by a media report that our economy is back. It is the natural way of doing things when we reopened it is going to go up slightly,” he said.
Under a muted recovery, Soriano said it can take more than 5 years to get back to the pre-2020 level of contributions to GDP.
Specifically, he said, the accommodation and food services, arts, entertainment and recreation will expect recovery in 2024 or 2025. The wholesale and retail trade, professional, scientific, and technical services and transportation may recover by 2021.
Other than groceries and household suppliers, at-home entertainment is the only category whose net intent to spend has remained resilient during this crisis.
Losers in this COVID-19 situation are oil and gas, education, financial services, manufacturing (non-essential), construction and real estate, automotive, aviation and maritime, and tourism and leisure.
Potential winners are agriculture, e-commerce, ICT, personal and healthcare, food processing and retail, and medical supply and services.