PHL and its neighbors from Asean: economic performance amid the pandemic

At the end of 2020, many of my friends, students and colleagues ask me why the Philippine economy is performing worse than that of our neighbors in ASEAN. This year, the IMF, ADB and the World Bank project a contraction of the Philippine economy from 7.3% to 9.9%. These were estimates even before three consecutive typhoons hit the country this last quarter. Our Eaglewatch forecast, which already accounted for typhoons, is 10% negative for the entire year. This performance will definitely lag behind Singapore, Indonesia, Thailand, Malaysia and Vietnam. Vietnam’s economy is sure to have a positive growth rate throughout the year. The GDP growth of the countries in the third quarter is shown below:

So why are we falling behind our neighbors?

First, they have done better at managing the virus. Outside observers have ranked the Philippines lowest among many countries in relation to various indicators for containing the spread of Covid-19. Bloomberg ranked the Philippines 43rd out of 56 countries in terms of what they called “Covid Resilience.” Indonesia, which has more infected cases and deaths than the Philippines, even surpassed us in the ranking due to better preparedness in access to vaccines. Meanwhile, The Economist and Oxford Economics ranked the Philippines among other economies as the most vulnerable country to the long-term effects of the pandemic. India has even surpassed us even with its huge number of cases and deaths. While both the number of cases and deaths in the Philippines have been gradually declining, problems related to contact tracing, establishing effective health protocols in transportation and workplaces, and variation in the way they local governments control the virus.

Second, trust between consumers and businesses has remained low. The Bangko Sentral ng Pilipinas survey indices for both returned -54.5 and -5.3, respectively, for the third quarter of this year. Pulse Asia in its mid-September 2020 survey, notes that 97% of Filipinos express concern about becoming ill due to the new coronavirus causing Covid-19 and 84% are very concerned about contracting Covid-19. SWS in its National Mobile Phone Survey of September 17-20, 2020 revealed that 77% of Filipino adults consider going to the market risky and 65% of those with jobs consider going to their workplace risky. Both Google Community and Apple Mobility data show that the Philippines has only gradually improved from a baseline set in January and February before the quarantines and lockdowns occurred. The country has not shown much improvement, particularly in locations for public transportation and in workplaces. Again, this is related to our policies in terms of transporting workers to their work areas and in the establishment and support of health protocols within companies and firms. Worse still, the mobility indicators of our Asean neighbors, notably Vietnam, Thailand, Singapore and even Indonesia, improved considerably.

Third, the Philippines has one of the smallest amounts in terms of stimulus package among the key Asean countries. Bayanihan 1 and 2 have provided more than half a billion pesos ($ 10 billion). However, in statistics provided by the Singapore Institute of International Affairs, this is still low compared to Thailand (around $ 75 billion), Malaysia (around $ 60 billion), Singapore (around $ 40 billion), Indonesia (about $ 30 billion) and Vietnam (about $ 20 billion). Our economic managers argue that the amount of spending does not necessarily correlate with higher GDP growth and that the country needs to manage its deficit well, as this pandemic could linger for longer. However, many economists think otherwise, as it is important to act immediately, especially on critical business support, not only with loans but also with subsidies. It is also true that the amount of the stimulus is also so important where the money really goes and if the allocated budget is actually spent and delivered to the sectors that need it most.

The Philippine government forecasts that GDP growth will expand and recover in 2021 between 6.5% and 7.5%. This can be achieved if trust is restored to businesses and consumers. This will require better management of the virus and increased public spending targeting the key sectors that need it most. However, at Eaglewatch we see that the economy will only gradually recover with growth of around 4% to 4.5%, as the reasons cited above are unlikely to be fully resolved immediately. Without the vaccine and / or herd immunity, the threat of Covid-19 requires a balancing act between improving confidence and ensuring health. Our growth story for 2021 and beyond depends on how well we tread this tightrope.