Bernardo M. Villegas
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Philippine Economy During the Short-term

       What will be the shape of the Philippine economy during the next six to twelve months?  Unfortunately, my answer will be far from the usual optimistic forecast to which my readers have gotten accustomed.  In the next six to twelve months, the Philippine economy will be the slowest growing among the major economies of East Asia, registering a GDP growth rate of 3 to 4 percent for the whole year of 2021.  As I foresee a prolonged period of lockdowns in different regions of the Philippines for the third quarter, we may experience still another negative GDP growth from July to September 2021.  Assuming we will survive the Delta variance by the beginning of the fourth quarter and the non-appearance of yet another equally or more deadly virus, the fourth quarter may see a growth of 6 to 8 percent mainly as a result of strong spending related to the Christmas season and the largesse of politicians who will be already feverishly campaigning for the May 2022 elections.

            In early August, we received the good news that GDP increased, year on year, by 11.8 percent, mainly on the basis of the precipitous drop of 17 percent in the second quarter of last year.  Unfortunately, the third quarter of 2021 may see another GDP decline of 4 to 5 percent since it will be the hardest hit by the ECQ and other forms of strict lockdown measures in the key economic regions of the country such as Metro Manila, CALABARZON, Central Luzon, Cebu, Western Visayas, Davao, Cagayan de Oro and others. Representative Joey Salceda, one of the few economists in the House of Representatives, has estimated that just two weeks of the ECQ (which could still be extended all the way to September) will lead to a decline in incomes of P405.34 billion.  This is way above the proposed (not yet even passed) P216 billion funding of two rounds of cash assistance to be given to each Filipino, regardless of economic status.  This means that even if this Bayanihan 3 bill is passed, there will still be a net decline in incomes of close to P200 billion as a result of the lockdowns. 

            Add to these negative factors the possible slowdown of the Build, Build, Build, program of the Government during the third quarter which will be the hardest hit by the lockdowns, complicated by the reality that the third quarter is also visited by more destructive typhoons and consequent natural calamities like flooding and mudslides that limit public works activities.  We can also be certain that the third quarter will see a significant slowdown of the government spending on infrastructures which amounted to P426 billion during the first semester of 2021, up by 43.2 percent from the same period last year and surpassing budget of P419 billion.  There is the hope that these infrastructure projects, both funded by the government and by the private sector, can recover in the last quarter to further boost the economy on top of Christmas and election-related spending.  Growth in the last quarter could make possible the average growth of 3 to 4 percent for the whole year, still too slow to compensate for the 9.6 percent decline in 2020.  Given all these figures, I foresee the Philippine economy recovering its pre-pandemic GDP level only in the second semester of 2022, a happy news for whoever will be elected President in May 2022.

            More than the declines in GDP, the sadder economic news have to do with higher rates of inflation expected in the second semester.  The recent slowing down of inflation to 4 percent year on year in July of 2021 is temporary.  As we move toward the end of the year, I expect inflation to move towards the 5 percent level, averaging for the whole year at about 4.5 percent.  The more severe typhoons I expect in the third quarter can wreak havoc on food supplies.  The stronger recoveries we are seeing in the U.S. and other developed countries can lead to higher oil prices which will impact on our transport sector.  The higher incomes in the hands of consumers coming from the continuing increase in remittances from OFWs and the relatively strong performance of the BPO-IT sector which employs some 1.3 million workers can fuel consumption spending (70 percent of GDP) in the last quarter, adding to the inflationary pressure.

            The worst economic news in the short term has to do with unemployment, underemployment and poverty rates.  Unemployment can inch up again closer to 10 percent and poverty incidence can top 20 percent again.  There will be more than 10 million workers either unemployed or underemployed.  People earning less than P100 daily per capita will be more than 20 million, most of them in the rural areas, such as farmers, landless farm workers, sustenance fisher folks and slush and burn planters. We have to make sure that these are the very first individuals who will receive the cash aid of P2,000 per head envisioned in Bayanihan 3.  All philanthropic activities of charitable foundations and CSR programs of business should be focused on ensuring that these poorest of the poor do not go hungry.  More than ever, we need private initiatives like those of the community pantry started in Quezon City and food banks channeling soon-to-expire products of food manufacturing firms and restaurants to the hungry.  The deleterious effects of undernourishment, especially on children, can be as bad for the health as infections from COVID-19.

            The light at the end of this dark tunnel can only be expected in the second half of 2022 when we can expect reaching a reasonable level of herd immunity as more of the population are vaccinated.  The first sectors to recover strongly are the food and agribusiness industry, logistics, health and wellness, domestic tourism, construction, low-cost and economic housing, fintech and the entire digital sector.  Those sectors that can expect to recover their pre-pandemic level, if at all, in 2023 to 2024 are the automotive industry, the large retailers, dine-in restaurants, private educational institutions, banks and other financial institutions, high-priced real estate,  public entertainment and leisure  establishments, and foreign tourism.  The next Government will be hard put to be the main engine of growth because of the very high debt burden incurred during the pandemic.  Local capital will still be shy, especially to fund necessary capital-extensive infrastructure projects.  There is no alternative but for the next Government to do everything possible to attract foreign direct investments in capital-intensive projects.  I hope that this present Government has still time to pass those three pending bills aimed at precisely facilitating the entry of foreign equity into capital-intensive infrastructure projects.  I leave it to the next Government to lead the move to amend the Philippine Constitution so that we can finally rid our society of the archaic Filipino-First mentality that could arguably have been appropriate during our first steps to national economic development in the last century but is so hopelessly counterproductive in this age of the Industrial Revolution 4.0 under which the telecom, media, advertising and the digital or IT sectors have been merged into one super-industry.  Limiting foreign investments in any one of these sectors Is tantamount to relegating the Philippine economy to the stone age, considering the paucity of local capital to invest in these sectors.    For comments, my email address is Bernardo.villegas@uap.asia.