Cielito F. Habito

Professor of EconomicsAteneo de Manila University

SharePhil SummitAugust 28, 2020

The Philippine Economy:

Finding Our Way Out of Recession

Overview

1. Where We Are

• Economic Performance in 2020 (PiTiK Test)

2. What Lies Ahead

• How Do We Speed Up the Recovery?

• Economic Outlook

• Toward a New and Better Normal

1. Where We AreEscalating challenges

‘PiTiK’ Performance, 2020Big reversal due to COVID-19

▪ Presyo: Prices relatively stable -FY 2019: 2.5%, YTD 2020: 2.5%

▪ Trabaho: Unemployment zooms; 7.25M jobless (still underestimated?):17.7% vs. 5.1% in Q2-2019, 5.3% in Q1-2020

▪ Kita: GDP falls into recession first time in 29 years: -0.7% in Q1-2020; -16.5% in Q2

Presyo: Inflation Rate Steady

5.2%

2.5% 2.5%

Latest Jobs Data:Unemployment Zooms

• Jobs fall across the board; farm jobs least affected

Source: PSA Labor Force Survey, Jan 2020

MSMEs dwindling further

Quality jobs declining

Job Market Collapse

Income/Output: Drastic Reversal

• Agriculture speeds up; defies lockdown• Industry in major decline due to ECQ; services also largely

immobilized • Annualized Q-O-Q growth was -76% (vs. Singapore -41.9%,

US 32.9%)

Agriculture Defies Lockdown

Industry: Tapering Growth

• Manufacturing: immobilized• Construction slides; BBB faltering

Losers• Tobacco Prods (-68.5%)• Textiles (-66.4%)• Transport Eqpt (-63.9%)• Non-elec Machinery (-63%)• Furniture, Fixtures (-57%)• Wearing Apparel (-55.2%)• Leather Prods (-41.7%)• Non-met Min Prods (-54%)

1E

Manufacturing, Q2-2020 Gainers• Pharma Prods (7.7%)• Coke & Ref’d Petrol (1.8%)

.

• Fab. Metal Prods (-54%)

• Electrical Machinery

• Beverages

• Rubber & Plastic Prods

• Other Manufacturing

• Basic Metals

• Computer, Elec & Optical

• Paper/paper Prods

• Wood Prods

• Chemical & Chem Prods

• Printing & Publishing

• Food Manufactures (-9%)

Services Fall – Except Banks, ICT

Financial Services: Win-Win

• From 2004-2019:

• Avg. GDP Growth – 5.8%• Avg. Fin Sec Growth – 8.9%

• At slowest GDP growth (0.9% in 2009), FinSec still grew 7.1%

• In 2019 - GDP grew 6.0%; FinSec 11.9%; Q2-2020 - GDP -16.5%; FinSec 6.8%

• Big banks win through thick or thin: In 2019, BDO profits were up 35%, Metrobank 28%, BPI 25%, Land Bank 20%, SB up 17%, etc.

Demand Side: Shrinking Spending

The Economy in 2020: Latest Indicators

• Presyo steady, but trabaho and kita have dived• Manufacturing sees severe contraction due to lockdowns• Steep drops in exports & imports (slackening?)• Remittances sliding for 4 months in a row (easing?)

Meanwhile:Steep Slide in Foreign Direct

Investments

Falling FDI: -4.9% in 2018, -23.1% in 2019

-36.2% in Q1-2020

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

SIN INO VIE THA MAL PHL

94.8

19.1

11.07.2 7.0 5.1

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

SIN INO VIE THA MAL PHL

94.8

19.1

11.07.2 7.0 5.1

Comparative FDI Inflows

Q1-Q3 2019, in Billion $

PH FDI falling 3 years in a row even as our close

neighbors’ FDI continue moving upward.

2. What Lies AheadRecovery and the New Normal

1. How do we speed up recovery?- What industries, occupations, and areas must we

focus on to restore jobs?

- What industries, occupations, and areas must we focus on to restore income growth?

2. What would/should the ‘new normal’ be like?- What changes will equip us better for future

challenges?

Post-COVID-19 Questions

1. How Do We Speed Up Recovery?

• Restore Jobs: Which industries and geographical areas account for the most jobs?

• Restore Incomes: Which industries and geographical areas contribute the most to output and incomes (GDP)?

Restoring JobsWhich industries account for the most jobs?

Sector/IndustryPercent

ofJobs

TotalJobs

(Million)

Wholesale&retailtrade 20.2 8.62Agric,hunting&forestry 20.0 8.53

Construction 9.4 4.01Manufacturing 8.6 3.67

Transport&Storage 8.0 3.41Govtserviceincl.military 6.6 2.82

Otherservices 6.3 2.69Accomm&foodservices 4.7 2.00

Source: PSA Labor Force Survey, Jan 2020

Restoring IncomesWhich industries contribute the most to GDP?

Sector/IndustryPercentof

GDP

Manufacturing 22.8Trade&RepairServices 17.2

RealEstate,Renting&BusinessActivities 11.1OtherServices 10.5

FinancialIntermediation 7.7Transport,Storage&Communication 7.3

Construction 6.8Agricultureandforestry 6.5

GovernmentServicesIncl.Military 4.5Electricity,GasandWaterSupply 3.2

Fishing 1.3Mining&Quarrying 0.9

Restoring IncomesWhose spending contribute the most to GDP?

SpendingCategoryPercentof

GDP

HouseholdFinalConsumptionExpenditure 68.41

DurableEquipment 15.64

GovernmentFinalConsumptionExpenditure 11.62

Construction 10.70IntellectualPropertyProducts 1.68BreedingStock&OrchardDevt 1.18

NetExportsofServices(Exp-Imp) -0.06NetExportsofGoods(Exp-Imp) -9.36

Substantial OFW displacements are already impacting on this

Prioritizing AreasWhich regions/provinces/cities account most for jobs & GDP? Which are least at risk from the virus spread?

NCR

III

IV-A

VII

VI

NCR

III

IV-A

VI

VII

GDPJobs

XI

XI

Which regions/provinces/cities have the greatest prevalence of COVID-19 cases?

Which regions/provinces/cities have the greatest prevalence of COVID-19 cases?

COVID-19GRDPPopulation

Areas that can most contribute to restoring jobs, production & incomes are also those where it’s most risky to ease up.

Phased Reopening

▪ Continuous: Agri/fishing/food & trade, health, banking

▪ First to Resume (with P/D): Construction, manu-facturing (heavy, auto, durables), mining, BPO

▪ For Reconfiguration (New Normals):

- Scale Up – Online retail, logistics, internet services, ICT services (online platforms, entertainment, AI, ++)

- Scale Down – Restaurants, consumer retail/malls, cinemas, spectator sports

- More Automation & ICT – manufacturing (light, mass-produced goods), education, misc services, health care

- More WFH - Finance, utilities, business services, ++

Where Should Stimulus Money Go?

Support the Demand (Spending) Side

▪ Continue support for essential consumption spending esp for displaced workers → More cash transfers to the poor and displaced

▪ Testing, tracing, treatment: restore confidence (kumpiyansa) to go out and spend

Supply Side: Not Before Demand Side Measures

▪ Assist small business, not throw more hurdles: Free, widely accessible COVID tests for employees, subsidize incremental costs of safety protocol measures & materials; financing assistance (majority not using banks)

▪ Assist critical hard-hit large businesses (airlines, tourism industry, ++)

Philippines: PiTiK Outlook, 2020

▪ Inflation Rate: 2.3-2.7% → steady or even lower (low oil prices, demand)

▪ Jobs: Employment Rate of 94.5-95.5% (or Unemployment Rate of 4.5-5.5%) → >10% Full Yr

▪ GDP Growth: 6.0-6.5% – expect recession for rest of 2020: -6 to -8% full year decline

Technical Projections(Ateneo Macroeconometric Model)

▪ Physical distancing, face mask usage will continue for time to come as fear of contagion persists: people with cars will shun public transport (more traffic?); international tourism down

▪ Closures, scaled-down (spaced out) capacities of dine-in restaurants, cinemas, sports events, bazaars, churches, etc

▪ More work-from-home, online retail & services to dampen overall demand for public & private transport, raise demand for internet services, e-commerce, ICT products, & logistics

▪ Dominant digital money & banking transactions as banks need to transform business models

▪ More localized value chains, urban agriculture & home food production

▪ More online learning,distance education

The New Normal: What would it be like?

The New Normal: What should it be like?

The New Normal: What should it be like?▪ More & better-equipped hospitals, testing labs; effective

UHC

▪ Geographically dispersed economic activities; less Manila-centric, more urban centers, less concentrated megacities; greater shift inland and to higher ground

▪ Diversified & modernized and agriculture sector that is highly productive and competitive; with shorter supply chains

▪ Livable cities with well-organized public transport & logistics; bicycle- and pedestrian friendly with reduced GHG emissions; CC- and D-resilient

▪ Expanded and upgraded internet connectivity nationwide

▪ Effective social protection system: ICT-enabled & data-driven

▪ Social bonding, not social distancing (only physical): quality relationships, not material accumulation

A Real Threat: A Worse Normal?

• Pressure to quickly revive economies makes it tempting to set aside environmental and other regulations seen to raise business costs (US, Canada, India, Australia, South Africa)

A Real Threat: A Worse Normal?

• Pressure to quickly revive economies makes it tempting to set aside environmental and other regulations seen to raise business costs (US, Canada, India, Australia, South Africa)

Shaping the New NormalToward a truly inclusive economy ▪ Vigorously pursue farm diversification & agri-industry deve-

lopment thru infra support (irrigation, common processing facilities, etc.) & DA-backed province-led extension system

▪ Decongest Metro Manila: Scale down Manila port while scaling up Batangas, Subic and other regional ports

▪ Upgrade, upscale national internet connectivity

▪ Aim for Zero Hunger as policy goal of of national and local governments (curb stunting due to severe malnutrition)

Toward adequate and effective social protection▪ Implement National ID System soonest; build national

database for targeting the most socially vulnerable

▪ Incentivize investments in hospital modernization, healthcare broadening & modernization

▪ Fully fund Universal Health Care system

Shaping the New Normal

Toward a sustainable future▪ Shift new physical development and economic activities

further inland & to higher land, and into our waters (assert archipelagic development orientation)

▪ Overhaul public transport system (e.g., fixed driver wages, rationalized routes, efficient & envi-friendly fleet ++)

▪ Foster sustainable lifestyles (bicycle- & pedestrian-friendly cities, more local VCs, zero-waste consumption, +++)

Toward strengthened social bonding & deeper human relationships▪ Foster farm and fishery clustering via co-ops, block farms,

nucleus estates++, to gain economies of scale

▪ Foster strengthened neighborhood/community associations

That agriculture saved the economy from even worse decline reinforces the long-held view that we must really look to this sector as the economy’s ultimate backbone, COVID-19 or no COVID-19.

Philippine Daily Inquirer, August 11, 2020