The Worst May Be Over for the Philippine Economy
The latest report on the economy showing a contraction of 11.5 percent in the third quarter is not at all surprising. Rather, the gross domestic product (GDP) figures simply tell us that the economy has bottomed out in the second quarter and that it has slowed down its descent in the succeeding three months.
More interestingly, the slower GDP decline proves the reopening of the economy is spurring more activities compared with the second quarter and despite the challenges in the public transportation sector.
I agree with the assessment of our economic managers. As I have been writing in this column before, restrictions in public transportation are preventing many Filipino workers from rejoining the labor force, even if the government has allowed more industries to operate.
The Inter-Agency Task Force on Emerging Infectious Diseases issued guidelines that effectively permitted close to 60 percent of workers in Metro Manila to resume work in September. But public transportation could only accommodate nearly 36 percent of the volume because of social distancing rules and lower turnout of operators. This meant some 22.7 percent of workers in the capital region were unable to work even if they want to.
The GDP data recently released by the Philippine Statistics Authority seems to confirm the effect of the limited public transportation on the mobility of our workers. Among the industries that stunted the economic performance in the July-September quarter were construction, which shrank 39.8 percent; real estate and ownership of dwellings, -22.5 percent; and manufacturing, -9.7 percent.
The top 3 industries that posted positive growth, presumably because of less stringent social distancing rules involved (compared with those in the public transportation) were financial and insurance activities, 6.2 percent; public administration and defense and compulsory social activities, 4.5 percent; and agriculture, forestry and fishing, 1.2 percent.
The economy, nonetheless, has begun to show signs of recovery. Our economic managers in a joint statement agreed that the economy on a quarter-on-quarter basis grew 8 percent in the third quarter, “reflecting the return of economic activities as the quarantine was eased.”
There is reason to be more upbeat in the fourth quarter. New guidelines from the Department of Trade and Industry allow more sectors to expand capacity to between 75 and 100 percent starting in October. The Department of Transportation also issued rules increasing the public transport capacity using a combination of faster turnaround, service contracting and adequate social distancing.
The smaller GDP contraction in the third quarter, while not ideal, may be an indication that the recovery phase is not that far and we should be prepared for it, especially now that the Covid-19 infection rate in the Philippines is declining. Our coronavirus data is encouraging and should convince foreign investors about the efforts of the government in containing the spread of the pandemic.
The Philippines, according to a Covid-19 update on November 13, 2020, now ranks outside of the top 25 nations with the most virus cases. The Philippines is on the 26th place with 404,713 total cases and the daily infection rate down to 1,902. Our total active cases are down to just 34,058.
Indonesia, by comparison in Southeast Asia, registered a total of 457,735 cases, ranked 21st in the world, and with total active cases of 57,604.
I believe the Philippines has managed the risks attendant to the reopening of the economy. Our workers are also responsible enough and have learned how to live with the virus.
Managing risks, instead of avoiding them, according to our economic managers, will allow us to safely open more of the economy and help Filipinos recover their sources of income.
I remain optimistic about the Philippine economic recovery despite the GDP contraction that persisted in the third quarter. We are not out of the woods yet, but our strong fundamentals (stable inflation rate, gross international reserves of close to $104 billion at the end of October and a stable exchange rate) are preparing the economy toward the recovery phase.
Our young population, meanwhile, will serve as our insurance when the global economy eventually recovers and when the vaccine becomes widely available. Our young demographic, as opposed to Japan and Singapore, and our highly skilled pool of workers will certainly be a major asset in turning around the Philippine economy.