Before the spread of the Corona Virus 2019, the Philippine economy was one of the most
dynamic economies in East Asia. The country's economic development is dependent on sustained
consumer demand, a thriving labor market, and remittances from abroad. Urbanization, a growing
middle class, and a young population all contribute to these developments. The Philippine
economy has made significant progress in achieving inclusive growth in recent years. Poverty has
decreased from 23.3 percent in 2015 to 16.6% in 2016. The impact of COVID-19, on the other
hand, has stalled this upward trend in real wages, with negative implications for poverty reduction
in the Philippines.
The impact of COVID-19 on the Philippines economy
In January 2020, the country’s first COVID-19 case was recorded, and by March, the country
had been placed under a strict community quarantine, restricting mobility and commercial activity.
While these actions delayed the spread of COVID-19, they had serious negative consequences for
family incomes, jobs, education, food security, and businesses.
Impact on the Philippines GDP
The pandemic caused the Philippines’ economy to decline to its lowest level since World
War II, with GDP decreasing by 9.5% in 2020. It’s the worst drop since records began in 1947,
and it’s also the first time the economy has shrunk since 1998, when it contracted by 0.5%. When
the tightest lockdown was implemented in the second quarter of 2020, GDP fell as low as -16.9%.
Foreign Direct Investments (FDI)
The economic impact of the coronavirus pandemic reduced foreign direct investment (FDI)
by 24.6% to 6.5 billion in 2020, down from 8.7 billion in 2019. Since the peak in 2017, FDI has
dropped for the third year in a row. To boost the economy, the government is relying on foreign
investment, and hopes to entice foreign investors to invest in the Philippines, using legislative
measures such as corporate tax cuts.
Debt
As a result of the COVID-19 crisis, the Philippines’ national debt increased by 26.7% to
P9.7 trillion in 2020. As of the end of January 2021, this had risen to P10.3 trillion, thanks to the
government’s decision to take out a new bridge loan from the BSP (Bangko Sentral ng Pilipinas,
or Philippine Central Bank) to cover its financial obligations.
Revenue fell by 9% in 2020 due to rising expenses. The Bureau of Internal Revenue’s
collections fell by 10.3%, and the Bureau of Customs’ collections fell by 14.7%, resulting in an
11.4% reduction in tax revenues. The Philippine government faced a P1.37-trillion budget deficit
in 2020 due to higher expenses and decreased revenue.
Impact on businesses
Between April and July 2020, 88% of businesses reported a drop in sales, and between July
and November 2020, 67% reported a drop in sales. The biggest cause of decreased sales was
limited operation (58%) and customers’ inability to visit brick-and-mortar establishments (38%).
A high number of businesses reported severe liquidity problems, with many claiming to be
cash-strapped and behind on payments. 66% of businesses lacked sufficient cash to cover all costs
and liabilities, such as wages, suppliers, taxes, and loan repayment, for more than a month. 48%
of businesses were in default.
Despite cautious optimism that sales and employment will improve over the next three
months, many businesses expect their financial situation to worsen.
Last year, the government passed two financial stimulus bills that gave targeted aid to
workers in specific industries, although some critics have called them insufficient.
Two-thirds of businesses have adopted or increased use of the internet, social media,
specialised applications, and digital platforms in various business tasks, with these businesses
reporting that digital solutions accounted for 10% of their sales. In response to COVID-19, the use
of digital solutions has increased across all company sizes, sectors, and locations.
Employment
According to the Philippine Statistics Authority, the annual unemployment rate in 2020 was
10.3% or 4.5 million unemployed Filipinos. Since April 2005, this is the highest annual
unemployment rate ever recorded. Sadly, the problem appears to be worsening – according to the
PSA, around 4 million Filipinos were unemployed in January 2021. This is more than the 3.8
million people who were unemployed in October 2020 and the 2.4 million who were unemployed
in January 2020.
Meanwhile, in January 2021, the number of underemployed – employed people who
expressed a need for more hours of work – is estimated at 6.6 million, or 16% of the total employed
population. This underemployment rate is greater than the 14.4% rate in October 2020 and the
14.8% rate in January 2020.
The economic outlook for the Philippines
The Philippines may face a longer road to recovery than its neighbours. It has imposed
harsher and longer-lasting movement restrictions, as well as more conservative fiscal stimulus,
causing economic scarring that will make it more difficult for the economy to recover.
More companies have reopened since the community quarantine was lifted (63% in
November, compared with 45% in July), but only a tiny percentage are operating at full capacity
(9%). While some company owners shuttered their doors to comply with government regulations
(9%), others (21%) chose to do so despite the lessened community quarantines. Approximately
7% of businesses have permanently closed.
GDP fell 9.5% in 2020, the greatest drop since records began in 1946. Nonetheless, the
quarterly numbers show that the decline has slowed since the pandemic began. In April, the
unemployment rate rose to 8.7%, equating to 4.14 million Filipinos. In May, inflation reached
4.5%, significantly beyond the government’s objective of 2-4%.
A tough 2021
It is expected that GDP will remain stagnant in 2021, while the rest of Southeast Asia will
bounce back from recession. President Rodrigo Duterte intends to spend a record 4.7 trillion pesos
($98 billion) this year in the hopes of achieving a 7.5% GDP growth rate.
Much rests in the hands of the Philippine political class. On June 1, the Philippine House of
Representatives passed a third stimulus package in a near-unanimous vote, which supporters claim
will bring much-needed economic relief to unemployed Filipinos. The bill has yet to be approved
by the Senate.
.
That was prior to COVID-19.
The rude awakening from the pandemic was that a services- and remittances-led growth
model doesn’t do too well in a global disease outbreak. The Philippines’ economic growth faltered
in 2020 — entering negative territory for the first time since 1999 — and the country experienced
one of the deepest contractions in the Association of Southeast Asian Nations (ASEAN) that year
(Figure 1).
Figure 1: GDP growth for selected ASEAN countries
Source: Asian Development Outlook
And while the government forecasts a slight rebound in 2021, some analysts are
concerned over an uncertain and weak recovery, due to the country’s protracted lockdown and
inability to shift to a more efficient containment strategy. The Philippines has relied instead on
draconian mobility restrictions across large sections of the country’s key cities and growth hubs
every time a COVID-19 surge threatens to overwhelm the country’s health system.
Another global institution has rolled back its growth forecast for the Philippines this year as
the country continues to grapple with the COVID-19 health crisis.
In its World Economic Outlook published Tuesday, the International Monetary Fund listed
a 3.2% growth projection for the country in 2021. This is a far cry from its 5.4% forecast in June,
which was likewise a downgrade from the initial 6.9%.
The road to economic recovery
Any economic recovery will be dependent on the nation’s vaccination programme. To attain
herd immunity, the government wants to vaccinate 70% of the country’s 100 million people by the
end of 2022, but it has only struck deals for approximately one-third of the doses needed so far.
In 2021-2022, economic growth is predicted to gradually recover – providing that the virus
is contained both domestically and globally, and that domestic activity is strengthened by increased
consumer and corporate confidence and public investment momentum.
According to Moody’s, the Philippines’ economic output will not return to pre-pandemic
levels until the end of 2022. China, Taiwan, South Korea, and Vietnam, on the other hand, have
already returned to their previous output levels, while Indonesia and Thailand are predicted to do
so later in 2021.
Final thoughts
The Philippines economy faces a long road to recovery; the impact on businesses and
livelihoods will be felt for many months to come. Jobs will be in short supply – with certain sectors,
such as tourism and sales, worse affected than others.
In a tough jobs market, it helps to stay on top of worldwide economic trends, such as
the transition to the green economy, the development of sustainable resources and new challenges
in natural resource management. This will lead you to spot opportunities that others may
miss. Regardless of what sector you’re interested in studying, the resources available on
FutureLearn will help you to stay one step ahead in a competitive market. Browse our courses and
ExpertTracks and expand your knowledge today.