For all of 2020 and most of 2021, the average middle-income Filipino family will have to tighten their belts as the Philippines is expected to experience a deep recession which could see the Gross Domestic Product of the country taking a dip of anywhere from 3 to 5 percent for the whole year of 2020. The worst-hit region will be Metro Manila (the National Capital Region) and some provinces in Central Luzon and CALABARZON that have had the longest and strictest lockdowns, together with Metro Cebu. Fortunately, there are provinces and regions that will not be as badly hit. In fact, for the last five years, even before the pandemic, the NCR has been one of the slowest growing regions. Regions outside of Metro Manila like Central Luzon, Southern Luzon, Bicol, Northern Luzon, and provinces like Davao and Iloilo have grown much faster. The pandemic has widened the gap in growth rates between NCR and these other regions, especially those that are more agricultural since agriculture has still been growing, albeit at a minimal rate of 1 to 2 percent.
One implication of this phenomenon is that families in the Metro Manila area are well advised to listen to the advice of the government that is advocating a “balik probinsiya” (go back to the countryside) policy. The first move of people in the heart of Metro Manila could be towards the provinces of Batangas, Quezon, and Rizal where there are emerging semi-urban communities and employment opportunities, not only in high-value agriculture (vegetables, fruits, livestock) but also in construction and services (education, domestic tourism, IT-BPO). Another equally attractive region for relocation of both employment and residence would be Central Luzon, especially the so-called Pampanga Triangle consisting of Angeles, San Fernando, and Clark. With all the new infrastructures whose construction is ongoing or planned (such as the railroad from Clark to Manila), Central Luzon will be a bustling metropolis in no time soon.
In equally overcrowded Metro Cebu, families should seriously consider relocating to Iloilo (the most improved city infrastructure-wise in the Visayas), Bacolod, Dumaguete, Davao, Cagayan de Oro, and General Santos, among others. It was providential that areas farther away from the Metro Manila area have been the least infected by the coronavirus. Since the virus is expected to linger long, even when a vaccine is discovered and widely distributed, it would really be wise for many families to look for opportunities of employment or entrepreneurial activities in regions as far as possible away from the National Capital Region.
What is helping this return to the countryside is the increasing share of the Build, Build, Build program budget that is being allocated to infrastructures in regions outside of Metro Manila. It is encouraging to witness that the less restrictive lockdowns prevailing in areas outside the National Capital Region and Cebu are permitting the projects under the Build, Build, Build program to resume and be given a big push in the second half of 2020 and beyond. The Government alone is setting aside R1.12 trillion pesos or 5.4 percent of GDP for the infrastructure program planned for 2021.
This level of spending is expected to continue far beyond the present administration since it will take at least another decade or so before Philippine infrastructures can come close to the quality of those of our Asian neighbors like South Korea, Taiwan, China, Singapore, or even Vietnam whose per capita income is still lower than ours. Fortunately, our economic managers over at least the last three administrations have been fiscally responsible, keeping our debt to GDP ratio and fiscal deficits at prudent levels, permitting the government now to borrow heavily to address the COVID-19 challenge and stimulate economic recovery over the next two to three years.
Most Filipino families are headed by relatively young people below the age of 40. The young and growing population of the Philippines is one of the major reasons why our country is considered by many outside independent think tanks and institutions to be among the fastest to recover from the economic depression brought about by the pandemic. It is providential that Filipino couples have generally been spared the contraceptive mentality prevalent in many developed countries today and have maintained our fertility rate above the zero population growth level of 2.1 babies per fertile woman. The average Filipino family still has about 3 children.
This is one of the reasons that the economy can quickly rebound once the pandemic is put under control, say within the next two years. A large and growing population (and in our case English-speaking) is a great advantage in a world where practically all developed countries are suffering from rapid ageing and are in need of workers to supplement their own labor forces to take care of their numerous senior citizens.
We have already seen how over at least the last 15 years, anywhere from 10 to 12 percent of our GDP came from remittances of the earnings of of our Overseas Filipino Workers. Just before the pandemic, the annual figure was close to $33 billion. For 2020 and possibly 2021, we may experience a drop of 3 to 5 percent in these remittances (compared to an average 3 to 5 percent annual growth in the past). As economies in the developed world recover, there will be a large increase in the demand for Filipino workers all over the world, especially in Northeast Asia and Europe because of the premium given to Filipino workers for their soft skills, especially in health-related and hospitality services, not to mention in construction and seafaring. Even at the height of the pandemic, I met Japanese and German nationals who are actively teaching Filipino health workers and care givers in their respective languages to prepare them for employment in their respective countries. The other sectors where the demand for Filipino Overseas Workers will be large once the global economy recovers are in education, IT, and construction.
Another economic advantage derived from a young and growing population is the stimulus it gives to domestic consumption, which in the case of the Philippines accounts for more than 70 percent of our GDP. In fact, over the last ten years our GDP growth of over 6 percent per annum has been mainly propelled by our 110 million (and growing) population spending on a wide range of consumer goods and services. Unlike many of our East Asian neighbors, we are not heavily dependent on exports for our GDP growth. Even when the whole world is suffering from a recession (as in 1997 to 1999 and 2008 to 2012), our GDP can still grow reasonably fast since our businesses have a large market to which to sell. That is why as long as we can put a limit to the number and degree of the lockdowns occasioned by the pandemic which will allow Filipino consumers to start spending on more than the basic of food, shelter, and clothing, our consumption-driven growth will resume. Together with the stimulus packages from the Government and resumed investments from both domestic and foreign businesses, we can return to the 6 to 7 percent growth path by 2022. In fact, growth rates of 7 to 9 percent are possible if we are able to address with some degree of success the growth dampeners, such as very low agricultural productivity, obstacle to doing business put up by national or local government agencies, corruption and poor governance, very high electricity rates, poor Internet connections, and shortage of technical skills (due to the obsession with a college diploma of most parents and their children).
To be continued.