The positive second quarter growth in gross domestic product (GDP) is only a rebound from the record economic collapse in the same period last year, said research group IBON. It is not a sign of recovery gaining traction. The group said that growth will fall in the rest of 2021 as the effects of economic scarring, continued lockdowns, and misguided fiscal conservatism are felt.
The positive 11.8% growth in the second quarter of 2021 breaks five straight quarters of economic contraction, said IBON. The relatively high growth rate is mainly because it is the first to be measured against the low base of when the lockdowns were at their worst last year, including a 17% contraction in the second quarter of 2020. However, year-on-year growth figures will worsen in subsequent quarters as this base effect fades, the group said.
The economy is virtually stagnant as it is, said IBON. Seasonally-adjusted quarter-on-quarter growth is a clearer indicator of momentum and the 0.7% growth in the first quarter of 2021 actually slowed to a 1.3% contraction in the second quarter.
The group said that a number of basic issues need to be resolved for sustained high growth and to recover rapidly. It will be recalled that the economy was slowing even before the pandemic. The lockdown-induced economic scarring of households and enterprises comes on top of this and will drag recovery even as vaccination proceeds and quarantine restrictions are relaxed.
High unemployment, bloated low-paying or non-paying pseudo-work, and collapsed family savings dampens the purchasing power of millions of households, IBON said. Hundreds of thousands of enterprises that have closed or only operate partially will not easily reopen or expand.
The group said that restrictive community quarantines are likely to continue in the absence of serious efforts to expand testing, contact tracing, and targeted isolations. Yet herd immunity is still distant because of vaccine supply constraints and the emergence of more contagious COVID-19 variants. Further episodes of harsh lockdowns remain possible.
The government’s refusal to spend out of a misplaced obsession with creditworthiness is the binding constraint to real and rapid recovery, said the group. Net of interest payments, the Php2 trillion in government spending in the first six months of 2021 is actually just 9.4% more than the Php1.8 trillion spent in the same period last year. This is no stimulus to the economy. This is even less than the average annual growth in government spending since the start of the Duterte administration.
Moreover, the government is not spending enough on containing the virus through free mass testing, expansive contact tracing, and making targeted self-quarantines and isolation more convenient for the people. If these were given enough attention then the protracted destructive lockdowns could have been eased long ago, said IBON.
Despite the turn to positive growth, the 3.9 million unemployed in the second quarter (average of April-June) is still slightly higher than in the first quarter (average of January-March). These are computed with the national level estimates of the preliminary labor force survey results. Second quarter unemployment is also some 1.5 million more than in January 2020 before the pandemic.
The group said that the 1.1 million increase in employment from 43.2 million in the first quarter to 44.4 million in the second quarter cannot be taken at face value. Jobs have shifted away from regular full-time work to informal pseudo-work. By hours worked, part-time workers increased 917,000 (to 17.2 million) and those with a job but not at work by 290,000 (to 733,000). In contrast, the number of full-time workers fell by 98,000 (to 26.4 million).
By class of worker, unpaid family workers increased by a huge 624,000 (to 3.7 million), self-employed without paid employee by 271,000 (to 12.6 million), and employers in own family-operated farm or business by 21,000 (to 970,000). Wage and salary workers in private establishments meanwhile fell by 67,000 to 20.9 million.
The government has unfortunately not collected income data during the pandemic. IBON computations on Bangko Sentral ng Pilipinas (BSP) data on households with savings may however offer a rough proxy for income trends. The number of households without savings increased by approximately 2.4 million to 17.8 million – over seven in 10 (71.7%) of total households – in the second quarter of 2021 from 15.4 million in the first quarter of 2020 upon the onset of the pandemic.
The Department of Trade and Industry (DTI) recently reported 99,575 micro, small and medium enterprises (MSMEs) closed and 458,043 only partially operating as of June 2021.
IBON said that the Php420 billion Bayanihan 3 proposal is an important measure especially after 17 months of stingy COVID-19 response. This needs to be prioritized and even expanded to become even more effective.