Last Tuesday, November 10, the Philippine Statistics Authority (PSA) reported that in the 3rd quarter of 2020 our economy shrank by an alarming 11.5% (Figure 1).
Sure, that’s smaller than the horrific 16.9% decline in the 2nd quarter. But 11.5% is still very bad. It tells us the road to economic recovery will be long and painful.
Even more depressingly, our 11.5% economic contraction turns out to be the worst in ASEAN — at least among neighboring countries with available data (Figure 2). A number of multilateral agencies indeed forecast that we will suffer the region’s worst downturn by year end.
Why is our economy falling behind in the region so bad?
Blame Duterte twice over: First, his government is failing to spend aggressively to stimulate our economy. Second, and more importantly, his government didn’t act fast enough against the pandemic.
Collapse of private sector spending
Figure 3 shows that the main driver of our economy — consumption spending by private households and individuals — collapsed in the 2nd quarter. It dragged down growth by 10.6 percentage points.
The reason is quite obvious: Filipinos have hunkered down in their homes and avoided public places such as malls, workplaces, and transit stations.
But several months into the pandemic, and despite the loosening of quarantine restrictions, Filipinos are still largely hesitant to go out of their homes to resume business as usual. (READ: Google data: Filipinos are staying at home more than their ASEAN counterparts)
Data also show big declines in education and health spending. This is concerning since it suggests that a lot of investments in human capital are not happening — think students who have dropped out and outpatients who have shunned hospitals and clinics — endangering the future of our people and the economy.
Apart from private spending, investment spending also drastically tanked. Many factories have halted production of machinery and durable equipment. Construction projects have been derailed left and right (Figure 4).
Government spending is weaker than ever
Evidently, only government spending was the source of any growth in the 2nd quarter.
But its 3.1 percentage point contribution was not nearly enough to offset the collapse of both consumption and investment spending.
Amid the country’s most severe economic decline or recession, the Duterte government is expected to spend aggressively to shore up our economy.
This goes back to the ideas of economist John Maynard Keynes, who proposed and pushed massive government spending — otherwise known as expansionary fiscal policy — in the throes of America’s Great Depression in the 1930s.
Of course, this is not your run-of-the-mill recession. It’s a health crisis first and foremost. Until consumers are confident to go out and spend, throwing money into public works won’t necessarily spur consumer spending throughout the economy. Still, it could help.
Unfortunately, signs of anemic government spending abound.
Data show that the Duterte government’s spending weakened rather than strengthened in the 3rd quarter: it contributed a mere 0.7 percentage point to total GDP growth (Figure 4).
Total government disbursements also shrank by 15.45% year-on-year in September — the worst decline since Duterte came into office.
And in late October, about a third of the P140 billion allocated by the Bayanihan 2 law were still stuck at the Office of the President.
All in all, Duterte is spending way too feebly and slowly, without any sense of urgency.
The sheer size of his government’s fiscal response also leaves much to be desired.
Bayanihan 2 amounted to just P165.5 billion, or about a quarter of the output losses we sustained in the 2nd quarter. (READ: Bayanihan 2 is here, but it’s too small, too late)
The 2021 budget — on which hinges the government’s pandemic and economic programs next year — is also only about 10% larger than the 2020 budget.
Most of its budget increases will be poured into infrastructure, government pensions, and Duterte’s anti-insurgency program — not on more crucial health, education, and economic aid programs.
Simply put, the 2021 budget is not the COVID-19 budget we desperately need. (READ: Why you should be alarmed by Duterte’s 2021 budget)
No Build, No Build, No Build
Earlier this year, Duterte’s economic managers touted Build, Build, Build as the centerpiece of our economy’s recovery.
But Figure 5 shows that public works dragged down total construction sector growth by 6.2 percentage points. Capital outlays were also reportedly down by 37.4% in September.
Far from saving our economy, Build, Build, Build has turned out to be a dud. (READ: Why we can’t Build, Build, Build our way out of this pandemic)
Note that construction projects by households, corporations, and non-profits actually fell by even more. Much economic pessimism and uncertainty still hangs in the air.
Monetary policy not working well
Yet another reason to demand aggressive fiscal policy is that the other tool to fight this recession — monetary policy — doesn’t seem to be working so well.
To shore up our economy, the Bangko Sentral ng Pilipinas (BSP) has already lowered its key interest rate and the proportion of funds that banks are mandated to keep as reserves.
In so doing, the BSP is encouraging banks to lend and our people to borrow — for, say, cars, houses, or their businesses — to induce more economic activity.
But Figure 6 shows that the growth of private sector lending actually crawled to its slowest pace in more than a decade. Banks have tightened rather than relaxed their requirements. Potential borrowers would rather save up rather than incur more debt.
With monetary policy proving ineffective, it’s up to Duterte and Congress to rescue our ailing economy through massive economic stimulus. But so far the data suggest they’re miserably failing at it.
Delayed, botched pandemic response
You can argue that the economic quagmire we’re all in is caused not so much by Duterte’s weak spending but by his delayed, botched pandemic response.
Figure 2 shows that, rather amazingly, Vietnam’s economy never contracted amid the pandemic. The reason is simple: they acted very early and effectively to contain the virus earlier this year, and they were able to quickly reopen huge swathes of their economy. (READ: Had Duterte acted earlier, PH economy would be safe to open by now)
Malaysia’s rebound is also quite remarkable. In the 2nd quarter, its economy contracted by 17.1% — just a shade more than we did. But in the 3rd quarter, the Malaysian economy declined by only 2.7%, leaving us in the dust.
The Malaysian government attributes this “to the reopening of economic activities and [the lifting of] the ban on interstate travel.”
Likewise, Duterte’s economic managers are keen to reopen as many sectors of our economy as possible. But recovery is not as simple as that.
Malaysian analysts are actually worried that the recent return of strict quarantine measures could spell grim 4th quarter GDP figures.
In the US, a prominent study showed that the economic reopening of some states was not followed by a commensurate increase in consumption spending.
Our economy, too, won’t recovery any time soon until the epidemic curve is flattened and new COVID-19 cases fall to zero or near zero. (READ: Kalusugan muna bago ekonomiya)
Blame Duterte’s negligence, incompetence
Before COVID-19, the Philippine economy was one of ASEAN’s stars. Duterte’s economic managers never failed to boast that we were growing fast at between 6% to 7% yearly. And we’ve come a long way from the economic trough during the martial law years.
It’s easy to blame COVID-19 for our current economic malaise. But not all ASEAN economies are shrinking as much as we are now, even though all of us were hit by the pandemic one way or another.
Hence, the Philippine economy was felled not so much by COVID-19 but by Duterte’s gross negligence of the pandemic earlier this year, as well as his continuing inability to conduct quick, aggressive government spending.
For his abysmal incompetence, Duterte should pay. – Rappler.com
JC Punongbayan is a PhD candidate and teaching fellow at the UP School of Economics. His views are independent of the views of his affiliations. Follow JC on Twitter (@jcpunongbayan) and Usapang Econ (usapangecon.com).