As if we needed another reason to give up on 2020, the Philippine government on August 6 officially declared that the country has plunged into a recession as our gross domestic product fell by 16.5 percent.
The last time we were in a recession was in 1985 in the final years of the Marcos administration when the country recorded a GDP drop by 10.5 percent.
Even without defining recession, common folks like us know about it as we feel its effects firsthand.
The US-based National Bureau of Economic Research defines recession as a “significant decline in economic activity spread across the economy, lasting for more than a few months.” General indications of recession include loss of jobs, decline in personal (real) income, slowdown in production and manufacturing, and decline in spending among consumers.
We’re not the only ones in a recession. The global economy is deep-diving in its worst recession since the Second World War. Unemployment rates are climbing everywhere and businesses both small and big are closing down. The question for us is whether there really is anything to fear or worry about. The general answer is, it depends.
Who is affected?
The current recession is majorly caused by the COVID-19 pandemic. Governments, not just in the Philippines, had to restrict movement among its people to contain the spread of the virus. The restrictions disrupted the production and distribution of supplies.
On the side of companies and businesses, their ability to produce, sell, and earn from their products or services have been severely limited. Without the prospect of earning, businesses are forced to cut down on their spending. Business and companies have to downsize their operation in order not to bleed money. This translates to limiting the cost of production or operation, which includes laying off workers.
Businesses rely on consumers and consumers rely on a stable source of income to fund their spending. With people locked down in their homes due to the pandemic, both their capacity to earn and to spend are severely impaired.
According to a study by the Asian Development Bank (ADB), the lack of mobility translates into lower consumer demand. People cannot consume goods in the same level and manner, like visiting establishments or physically purchasing goods, prior to the pandemic. The same study pointed out that due to the pandemic, several industries, particularly “crowd-related businesses” such as hotels, aviation, restaurants, malls, recreation, among others, had to downsize their operation and lay off people.
Not all employees can have work from home arrangements and not all businesses can afford to operate under the restrictions placed by the government due to the pandemic. While businesses are at a halt, employers also cannot continue to maintain their payroll without income.
How long will it last?
The longer the recession is, the more severe its impact on economies, businesses, and individuals. The Philippines has one of the longest and strictest lockdowns in the world and despite such, COVID-19 cases continue to rise exponentially.
Without clear direction and prospects coming from the government, those who have resources are fearful about how long their depleting resources can last them. Those who have none are left with no other choice, but to scramble for aid from the government. If the economy will remain in recession for much longer, the effects may be much more catastrophic.
Without sound policies from the government as to how it will mitigate the coronavirus pandemic, while keeping the economy afloat, the country is in for a graver health and economic crisis that could cause “permanent economic scarring” as worded by the ADB. This means more businesses will close down and more people will lose their jobs. The recession will also cause “a sharp fall in household health and education spending, delayed human capital development, and discouraged entrepreneurship.”
What should we do?
The Philippine government has ramped its borrowing and spending in response to the coronavirus pandemic. It has mobilized the provision of subsidies for economically-vulnerable families through its Social Amelioration Program (SAP) and set up a stimulus fund for businesses to keep jobs.
Bouncing back from recession relies heavily on the creation and implementation of sound fiscal policies by the government and on protecting the most vulnerable segments of society through the reinforcement of social safety nets.
A study titled The Impact of the Economic Crisis on the Informal Sector and Poverty in East Asia by Santosh Mehrotra highlighted how government programs and policies, particularly the provision of strong social safety nets, can protect vulnerable sectors from the devastating effects of the economic crisis.
The study also revealed that the “the informally employed are likely to be highly vulnerable to exogenous shocks to their income and livelihoods” in times of economic crisis such as recessions. This is more worrisome as a significant portion of the Philippine population (46.4 percent) is living below $2 per day; a large majority of our workforce (81 percent) work in the informal sector; and Filipino households spend a big chunk (48 percent) of their budget on food. With income sources being compromised during the recession, many of our households could go hungry.
With these findings in mind, it is alarming that the government, with its spur-of-the-moment late night press conferences, has not provided any substantial report on the whereabouts of its budget for the pandemic or a clear course of action on how it will lead the fight against the pandemic amid daily rising cases. Without clear directions from our leaders, businesses do not have any reference as to how it can plan to resume its operations or production and individuals remain in the dark as to where and how they will get their daily sustenance.
According to the ADB study, the poverty impact of the pandemic could be lower if households can adapt to the local condition and/or “benefit from private sector or government relief programs”. While the government has the SAP, there were no follow-up reports on its distribution.
What we are missing
What we are missing in our understanding of the pandemic is its actual repercussion on the lives of actual people. The effects of recession are not limited to the downsizing of businesses or the shrinking of the economy.
Every downturn of the economy means loss of actual lives.
In the movie The Big Short, which talks about the Great Recession of 2008, one of the main characters by the name of Ben Rickert (played by Brad Pitt) mentioned that “every one percent unemployment goes up, 40,000 people die”.
Some of us would dismiss such an exaggeration, but the line was based on an actual study published in 1982 by Bluestone et al. and was also quoted in a 2005 publication entitled Economic Issues Today: Alternative Approaches by Wade Thomas. The study reveals, “one percent increase in the unemployment rate will be associated with 37,000 deaths including 20,000 heart attacks, 920 suicides, 650 homicides, 4,000 state mental hospital admissions and 3,300 state prison admissions.”
The findings of the study are still being debated, yet they give as a perspective that it is not only the coronavirus that is fatal. Our country being in an economic slump is also fatal, especially to the most vulnerable sectors of society. While everyone is negatively affected by the recession, we have to point out that some people are much more gravely affected compared to others. Our understanding of recession should include the awareness that our response and involvement on the issue shouldn’t only be dependent on our level of vulnerability. This applies all the more to our government leaders who make the decisions for us.