Luzon braces for massive economic meltdown due to lockdown

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Metro Manila (CNN Philippines, April 23) — The country’s biggest island-group, Luzon, might experience a massive and widespread economic meltdown as it endures a 45-day lockdown.

The country is expected to have an estimated loss of P767.19 billion, or 3.85% of the gross domestic product (GDP), according to a recovery plan prepared by the National Economic and Development Authority (NEDA).

Acting Socioeconomic Planning chief Karl Chua confirmed on Wednesday the estimates on the copy of recovery plan obtained by CNN Philippines.

The 94-page document indicates CALABARZON (Cavite, Laguna, Batangas, Rizal and Quezon) region will be hardest hit, with the lockdown denting its economy by P314.6 billion or 10.71% of GDP.

Rounding up the top three heavily buffeted by the crisis are Metro Manila (P269.2 billion losses or 3.6% of GDP) and Central Luzon (P103.8 billion or 5.6% of GDP).

The estimated losses were based on three separate surveys conducted by NEDA from April 5 to 8.

The respondents were from 44,097 companies – from micro and small retailers to large businesses – 6,863 farmers and fisherfolk, and 390,093 consumers.

Business losses are in the billions with the majority reporting zero sales in March and April. Retailers reported P97.9 billion in revenue losses, while restaurants, hotel and tourism industries, a combined P30.6 billion.

Even private schools are not spared. They expect losses – mainly through tuition fees -- of up to P142 billion if they remain closed by August. The impact will be at a softer P55 billion if schools reopen by that month.

As production – except food – grinds to a halt, factories (P525.2 billion), miners (P16.5 billion) and builders (41.7 billion) take a major hit, missing out on hefty revenue at over half a trillion pesos combined.

Farmers said they lost P73 million because their crops were not sold.

And close to home, household debts are expected to pile up. Small businesses that shut down are unable to pay back cash they borrowed as capital. Thirty seven percent of consumers polled say they had lower income because they lost their jobs. So banks are looking at P368 billion in loan defaults.

“These are survey results and we’re actually fielding a second bigger survey to understand better the quantitative because the first survey that we launched is more qualitative. It’s a fast survey to help us understand what is really happening and what are the general directions and we know from those that most businesses are affected,” Chua said in a CNN Philippines TV interview on Wednesday.

“That’s why we launched the support quickly,” he said.

In a nutshell, the proposed economic plan allows the economy to slow down because of the lockdown to contain COVID-19, but losses will be tempered by massive government assistance.

The government is already working on its assistance to different sectors affected by the crisis. They include cash dole-outs to the poorest, wage subsidies to the jobless, tax relief and loan guarantees for small businesses, and, getting the national ID system up and running to target who needs aid the most.

“The COVID-19 pandemic is probably the most significant shock of the century," said NEDA. "Worse, the only solution, at the moment, is to slow down economic activity."

The recovery blueprint also said the global disruptions coupled with the travel restrictions, weaker business and consumer confidence, as well as the enhanced community quarantine, could reduce “domestic economy growth to 1.0 to 0.0 percent in 2020.”

Chua, in a Tuesday virtual media briefing, said the economy could teeter between zero growth and a 0.8% contraction.

Although the recovery plan did not propose a lockdown extension, it suggested a need for community quarantines in “certain periods.”

Furthermore, NEDA said that flexible work arrangements and social distancing even in the workplace will be part of the new normal.

Mass transport, once resumed, will have fewer passengers or in technical parlance, “reduced load factor”. Travel and mass gatherings will remain restricted.

NEDA also wanted the administration of President Rodrigo Duterte to draw up a detailed action plan to boost the health system capacity.

Longer wish list

Big and small businesses have welcomed the NEDA-drafted recovery plan which aimed at steering them out of the COVID-19 crisis.

But their wish is longer.

“[The recovery plan] is very short term and will need, at another stage, structural changes to deal with the many millions of unemployed,” a foreign investor from a foreign chamber group said in a mobile phone reply.

Businessman-lawyer Perry Pe, who is also a former president of the Management Association of the Philippines, said the Department of Finance may need to rethink its earlier plan of cutting tax incentives which he noted harms exporters.

“Taking away their incentives may no longer work post-COVID,” he said.

Senate finance committee head Sonny Angara said the government should spend more on information technlogy infrastructure.

“I would just add expanding and protecting bandwidth and assisting smaller establishments to expand their online presence," the senator said in a mobile phone reply. "That’s where things are going so we must be inclusive otherwise only big guys will benefit."

Franchisers emphasized the need to rebuild business confidence.

“Very important is mental health of the entrepreneurs,” said Butz Bartolome, founder of the Association of Filipino Franchisers.

“They have to rebuild that confidence again because a lot of them have lost confidence in terms of where will I go? How will I restart? I lost a lot." said Bartolome.

"Even paying debts, they need to be taught well how to restructure their debt payment," he also said. "It’s not a doleout. Because if it’s a doleout, you’re not doing them a favor.”