Philippine Economic Society (PES)
THE recovery of the Philippine economy may take longer than earlier anticipated as consumption spending remained subdued, local economists said following the release of third-quarter National Income Accounts (NIA).
On Tuesday, the Philippine Statistics Authority (PSA) disclosed that GDP contracted 11.5 percent in the third quarter. With this, GDP in the last three quarters contracted an average of 10 percent.
Based on PSA data, even rich Filipinos or those who have the means are holding on to their cash as indicated by the steep decline in spending for valuables, which include heirloom jewelry, antiques, and other similar luxury items.
“For sure, the country will bounce back with positive growth figures next year, but that would only be a base effect,” Foundation for Economic Freedom President Calixto V. Chikiamco told the BusinessMirror.
“The economy has contracted so much due to the lockdown and restrictions that any opening up will result in positive growth rates. However, it may take three to four years before the country can get to the same GDP per capita it was before the pandemic,” he added.
Ateneo Center for Economic Research and Development (Acerd) Director Alvin P. Ang agreed with this estimate and said recovering economic losses caused by the pandemic may take three years.
Weak demand
This is due to weak demand that remains a problem for the economy. Ang said many Filipinos are still hesitant to spend while others may not have enough to spend.
Household Final Consumption Expenditure (HFCE) contracted 9.3 percent in the third quarter. Last quarter, HFCE contracted 15.3 percent, while it grew 6 percent in the third quarter of last year.
Under HFCE, only food and nonalcoholic beverages; housing, water, electricity, gas and other fuels; and communication posted positive growth of 4.6 percent, 6.7 percent, and 5.7 percent in the third quarter, respectively.
The largest decline in household consumption was on recreation and culture with a contraction of 59.3 percent; restaurants and hotels, 49.9 percent; and transportation, 33.4 percent.
On the expenditure side, valuables posted the largest contraction at 53.2 percent, a significant reversal from its year-on-year growth of 182.9 percent in the third quarter last year.
National Statistician Claire Dennis S. Mapa explained that these are “precious metals and stones, antiques and other art objects acquired not for use in production but held as stores of value over time.”
Boosting confidence
While a vaccine could be a gamechanger for consumption spending, economists do not deem this enough to get the economy back on track to its prepandemic strength.
De La Salle University economist Maria Ella Oplas said it is important that Filipinos know these vaccines exist and are available. This will certainly help them regain their confidence in the economy.
Unionbank Chief Economist Ruben Carlo O. Asuncion also told BusinessMirror that the vaccines need to be administered successfully in order to give Filipinos confidence.
Chikiamco, however, considers worrisome the projection by Vaccine Czar Carlito Galvez Jr. that the vaccine can only reach the Philippines toward the end of 2021 or early 2022.
“Huli tayo [we will be the last to receive the vaccine]. Besides, it remains to be seen whether we can do mass vaccination. The vaccines need two shots and have to be transported in refrigerated vans at below zero temperatures. Won’t be easy to distribute and administer,” Chikiamco explained.
ING Bank Manila Senior Economist Nicholas Antonio T. Mapa said the government can help restore confidence with increased spending to jumpstart spending via cash transfers, for a temporary jolt to incomes across the country.
However, Ang said with Government Final Consumption Expenditure (GFCE) slowing to only 5.8 percent in the third quarter, the government may not have enough resources to boost the economy further.
Data showed the 5.8-percent growth in GFCE is the slowest growth it posted since the first quarter of 2017 when GFCE contracted 2.1 percent. In the second quarter, GFCE grew 21.8 percent, the highest since the first quarter of 2012 when it was at 24.8 percent.
Ideally, Ang said, GFCE should have kept its double-digit growth in order to boost GDP. The growth of 5.8 percent in the third quarter was below expectations.
“That means the budget should be increased. Recovery will be prolonged without higher government spending,” Ang told BusinessMirror. “People are still apprehensive to go out, businesses are not borrowing, banks are not lending, and people have limited income.”
Demand-deficient recession
The situation right now is what is called demand-deficient recession, according to Oplas. She told this newspaper that with Filipinos not creating demand, firms are also not producing as much goods.
In these instances, ideally, Oplas said it is up to the government to “spend for the people to spur economic activity” consistent with Keynesian economics.
She said this makes lifting the General Community Quarantine (GCQ) restrictions so crucial. This much has been admitted by Acting Socioeconomic Planning Secretary Karl Kendrick Chua.
Chua reiterated on Tuesday that the economy is strong enough to recover if only the restrictions will be lifted.
“The lifting of the GCQ will for sure encourage Filipinos to part with their money. The lifting of the GCQ will allow businesses to open again; people to have their jobs back; and have money in time for the Christmas season,” Oplas said.
Typhoons
Apart from the need to respond to Covid-19, the government is hard-pressed to provide for the needs of households affected by Typhoon Rolly. The typhoon cost the economy as much as P24 billion or 0.13 percent of GDP.
Taken together, the impact of Typhoons Pepito, Quinta, Rolly and Siony is around P38.8 billion or 0.21 percent of GDP. Chua said with Philippine GDP around P18 trillion, there could be a reduction of 0.055 percentage points in GDP growth due to the typhoons.
“Typhoons are recurring. We experience almost 20 typhoons entering our area of responsibility every year. Unfortunately, some of them are more damaging than others,” Chua said.
“I think this is a manageable level. What is important is we fast-track the recovery so that more people will be reintegrated back after the disaster phase,” he added, however.
However, Chua told BusinessMirror that the government still has funds to support the needs of Filipinos affected by these typhoons.
He noted that funds are available from the 2020 National Budget. These are contained in the National Disaster Risk Reduction and Management Council and the Quick Response Fund (QRF).
Amid these challenges, economists like University of Asia and the Pacific (UA&P) School of Economics Dean Cid Terosa still have high hopes for the economy.
In Terosa’s view, for as long as the national government controls the clear and present risks caused by the pandemic, households will begin spending and robust business activities will return.
He explained that it is the Filipinos’ aversion toward contracting the virus that prevents them from spending and prompts them to secure their finances at this time.
“I foresee a tremendous flurry of production and consumption activities as soon as the vaccine is made available. Given effective medical intervention, there’s no way but up for the economy,” Terosa said.
Better prospects
In a joint statement by economic managers during the press conference on the performance of the Philippine economy for the third quarter of 2020, Chua affirmed the positive outlook for the country.
Chua said the double-digit contraction in the third quarter did not come as a surprise given the return of stringent quarantine measures in NCR, adjacent provinces and Cebu City, which account for around 60 percent of the Philippine economy.
He also said restrictions in public transportation prevented many workers from leaving their homes and reporting for work even if their industries are allowed to operate.
Nonetheless, the economy has begun to recover. On a quarter-on-quarter basis, the economy grew by 8 percent in the third quarter, reflecting the return of economic activities as the quarantine was eased.
The Cabinet has recently approved measures to further open up the economy in the fourth quarter, subject to enforcing the minimum health standards and enhancing the PDITR (Prevent, Detect, Isolate, Treat, Reintegrate) strategy.
The Department of Trade and Industry (DTI) and the Department of Transportation (DOTr), respectively, have also issued guidelines to allow more sectors to expand capacity to between 75 and 100 percent and to increase public transport capacity using a combination of faster turnaround, service contracting, and following the “seven commandments” for safe public transportation.
As the government pursues efforts to avoid virus surges while easing restrictions on businesses and transportation, Chua also said the economic team is hopeful that Congress will do its part to help the economy bounce back faster by passing the pending recovery bills within the year.
These are the 2021 General Appropriations Act (GAA), the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, the Government Financial Institutions Unified Initiative to Distressed Enterprises for Economic Recovery (GUIDE) Act, and the Financial Institutions Strategic Transfer (FIST) Act.
Philippine Economic Society President Emilio S. Neri Jr. said low confidence among Filipinos to spend was due to “unsafe” mass transport systems and retail shops that are indoors—thus perceived to be less safe.
Neri told BusinessMirror that right now, consumers need more cash in their hands. This is why Asean countries extended “meaningful wage subsidies” which allowed them to recover faster.
University of Asia and the Pacific (UA&P) economist Victor A. Abola told this newspaper that recovery may be possible in the second half of 2021.
He added that from a health perspective, Filipinos need to realize that present medication is available to fight the effects of Covid-19.
Abola also said firms and individuals are taking the necessary precautions, and the virus is getting weaker.
“There’s no need to wait for the vaccine to get firms to open again and workers to work. Besides, IATF has no numerical targets for it to remove or reduce drastically its restrictions,” Abola said.
Salceda: Deficit spending
While the third-quarter GDP figures reflect performance “of a time that is already past,” a lawmaker-economist said this is a clear sign to the government to increase the 2021 deficit spending to fund more programs and projects to prevent future economic pains due to the pandemic and recent typhoons.
House Committee on Ways and Means Chairman Joey Sarte Salceda said the government should not be afraid to increase deficit spending in 2021, as his committee “has measures lined up to raise a total of at least P300 billion annually.”
“In 2021, stimulus measures will work because mobility restrictions will be less than that of 2020, so we should not be afraid to spend more. I estimate that we have at least P150 billion more in fiscal space for the 2021 budget. I’ll confer with the DOF [Department of Finance] and DBM [Department of Budget and Management] to see what we can work out,” Salceda said.
Meanwhile, Salceda said the third-quarter contraction, which was deeper than analysts’ consensus, is also an indication that the government should include more direct transfers to the poor in the 2021 budget.
“Two weeks ago, I told members of the economic team that if the Q3 GDP figures are deeper than expected, we should have a bigger [third tranche of] Social Amelioration Program in the 2021 budget. It is now clear that it should be the case,” Salceda said.
“The fourth-quarter figures will have some complications, too, because of the typhoons. Before this pandemic, Bicol was one of the fastest-growing regions in the country. With one of our growth drivers diminished, we will see some of our pains continue to the fourth quarter,” Salceda added.
In a message to economic managers, Salceda said the government has to watch out for a depletion in disposable income and household savings in analyzing the country’s own third-quarter figures.
“If the disposable income goes down deeply, below expectations, we should be open to a direct, universal cash transfer. There should be some fiscal space left since we outperformed revised revenue targets this year,” he said.
Salceda said the government can borrow “a bit from future revenues” to fund projects and programs needed to address the impact of Covid-19 pandemic and to repay debt incurred during the pandemic.
The government has set a P3-trillion borrowing program for this year, as well as another P3 trillion for next year.
Salceda said Congress will help find ways—by approving revenue measures—to pay for what the country will borrow.
“We can also borrow a bit from future revenues, provided we enact the tax proposals my committee has already passed on to the House plenary and to the Senate. We can make them effective post-2022,” he said.
Tax measures pending before the Senate include Package 2 of the Comprehensive Tax Reform Corporate Recovery and Tax or Incentives for Enterprises Act (CREATE), Package 3 of CTRP or the Real Property Valuation Reform and Assessment Reform (RPVRA), and Package 4 of CTRP or the Passive Income Tax and Financial Tax Act (Pifita).
For CREATE, he said the two-year loss in foreign direct investment due to delays in passing CREATE was between $6 billion and $12 billion.
Other revenue measures that the House may tackle in the coming months are the proposed Digital Economy Taxation Act, fiscal regime for Philippine Offshore Gaming Operations (Pogos), updating of rates of the motor vehicle road users’ tax, and tax administration reforms to combat red tape.