An Economy on the Mend
There is no surprise in the 4.2-percent contraction in the economy during the first quarter of 2021. The lockdown measures in the first three months stifled economic activities, in stark contrast with most of the first quarter of 2020, when there were no restrictions yet until mid-March.
Over a year into the pandemic, however, we can see some emerging positive economic figures that could lead us to the proverbial light at the end of the tunnel. First and foremost, the economic contraction is slowing down quarter-by-quarter (the economy shrank 8.3 percent in the fourth quarter of 2020), while Philippine exports are improving, thanks partly to increased global demand for electronics and the reopening of major economies.
And I share the cautious optimism of our economic managers when they declared that the Philippine economy was on the mend. The economy actually grew 0.3 percent in the first quarter this year compared with the fourth quarter of 2020 on a seasonally adjusted basis. This is no big deal, but it is a strong confirmation that things are beginning to pick up.
Philippine exports increased 31.6 percent to $6.68 billion in March from $6.03 billion on the strong demand for electronics in the wake of an economic recovery in the industrialized nations and ramped-up Covid-19 vaccinations. Factories across the United States, Europe and Asia are expanding production. This is good news to the Philippines, which is part of the global value chains. Increased demand for Philippine exports will prompt our local factories to hire more workers.
Imports also rose 16.6 percent in March to $9.10 billion, after posting a downward trend from May 2019 to January 2021. Higher imports mean higher factory production in the near-term period.
Our economy may have fared better in the first three months of 2021 but its recovery is being hampered by quarantine restrictions. Household consumption, for instance, fell 4.8 percent in the first three months of 2021. For a consumption-driven economy, the lower figure indicates that consumer confidence has not returned. Fewer people are visiting the malls and spending their money due to quarantine restrictions, while many became unemployed because of the extended curfew hours and the closure of several retail outlets.
The gross domestic product figures in the first three months of the year shows the weaknesses of the economy. The construction sector dropped 24.2 percent as households presumably postponed their investments because of the uncertainty brought about by the pandemic. The private sector may also have deferred their expansion projects on low demand. The services sector, meanwhile, plunged 38 percent as tourism, fast-food restaurants and the hospitality and leisure sectors bore the brunt of the lockdowns.
The economy, thus, must reopen in phases to sustain recovery. Families and children who have been cooped up at home for so long must now be allowed to rejoin the economy to increase consumption.
In the meantime, I welcome President Duterte’s decision last week to put Metro Manila and four neighboring provinces comprising the NCR Plus bubble under general community quarantine with heightened restrictions starting May 15, from the modified enhanced community quarantine status.
The looser restrictions will pave the way for a more open economy. Increasing the capacity of indoor dine-in services in the capital region and nearby provinces of Cavite, Laguna, Rizal and Bulacan to 20 percent venue or seating capacity, for instance, will allow more service crew to participate in the economy. On the other hand, opening outdoor tourist attractions in the so-called NCR Plus region to 30 percent with strict adherence to minimum public health standards will spur spending, and will be good for the mental health of the Filipinos.
The economy also needs the resumption of personal care services such as salons, parlors and beauty clinics, at 30 percent capacity. This sector comprising of small entrepreneurs employs several thousands of Filipinos.
Easing the quarantine restrictions in the NCR Plus bubble region will restore business and consumer confidence. More importantly, the laxer environment will enable more Filipinos to rejoin the labor force. Easing Covid restrictions will place the Philippine economy on a more solid footing.