December 30, 2020
Reverting back to Modified Enhanced Community Quarantine (MECQ) could cost NCR and its adjacent regions some 2.1 billion pesos in wages a day. Meanwhile, every day of General Community Quarantine (GCQ) costs these regions around 700 million pesos in wages. These losses and setbacks point to the need to work together to safely reopen the economy further in 2021, the National Economic and Development Authority said.
For almost 10 months in 2020, the government implemented a series of strict community quarantines to help save lives from COVID-19, while building up the health system capacity. In 3 of these 10 months, the stricter ECQ/MECQ effectively shut down around 75 percent of the economy, resulting in huge losses in jobs and income.
“Based on the second and third quarter GDP numbers, NEDA estimates that every week of ECQ/MECQ in NCR and its adjacent regions alone shaves off 0.28 percentage points from GDP growth. This is equivalent to around 2.1 billion pesos in lost wages a day. The amount during GCQ is lower at around 700 million pesos a day, but this amount is still significant enough to bring hardship to many people,” according to Acting Socioeconomic Planning Secretary Karl Kendrick Chua.
“When we restricted the economy in the second quarter, GDP fell by 16.9 percent and the unemployment rate increased to 17.7 percent. On the other hand, when we further relaxed the quarantine in the second semester, GDP improved to -11.5 percent in the third quarter and the unemployment rate decreased to 8.7 percent in the fourth quarter. The combined effects of these were concretely felt by the people. According to the most recent Social Weather Stations (SWS) Survey, the hunger rate fell significantly to 15.7 percent in November from a record-high of 30.7 percent in September 2020. But we can still do better,” said the NEDA Chief.
Chua said a big part of these forgone wages come from restricting children and family activities. “For years, the country’s strong growth has been supported by its demographic dividend, where the country’s young population forms a large part of the labor force, earning income and driving demand,” he said.
The Philippine median age is 25, and 36 percent of the population is 18 years old or younger. According to the 2018 family income and expenditure survey (FIES), families of at least 3 members account for around 90 percent of total non-essential spending. Moreover, according to a 2019 study commissioned by a private firm and shared with NEDA, parents are the largest contributors to the 574 billion-peso total informal eat out market, which includes quick service restaurants. Parents account for around 48 percent of the spending, and is equivalent to 277 billion pesos.
However, the community quarantines have restricted economic activity from children and families. In fact, non-essential spending contracted by 51 percent in the third quarter.
“Since children are not allowed to go out of their homes, even to study, family activities are restricted, and thus a big part of the economy is not functional. If there were no such restrictions, GDP growth in Q3 2020 could have been 4 percentage points better at -7.5 percent rather than the -11.5 percent recorded,” according to Chua.
Based on consultation with leading malls and fast-food chains, some 32 to 50 percent of their sales are driven by family consumption as opposed to individual or worker consumption. A leading fast-food chain estimates that food bought with kids and for kids comprise 43 percent of total sales. Similarly, prior to COVID-19, a shopping mall chain estimates that about 46 percent of foot traffic came from parents with children. This translates to families contributing almost half of total sales.
“All these mean that while we opened the supply side during GCQ and MGCQ by allowing establishments and public transport to operate at higher capacity, the demand side is still very limited given the continuous restrictions that prevent children, and hence families from going out,” says Chua. “If we allow more consumption activities to resume, this will encourage firms to utilize excess capacity, which will eventually stimulate new investments to serve new demand,” he added.
“In 2021, the key to our recovery is to continue managing risks, not to avoid them completely. This way, we can bring back jobs and income sources to enable the far majority of people to also address their non-COVID-19 sicknesses and hunger. All economic indicators reveal that with the safe relaxation of community quarantines, incomes and jobs come back,” added Chua.
The NEDA chief also recognized the need to recalibrate strategies in response to the emergence of the new COVID-19 variant and implored the public to continue upholding the minimum health standards and to take the necessary precautions to prevent the transmission of the virus.
“What is clear from our experience this year is that we need to continue working together if we want a better 2021. The losses have been huge and a reversal to stricter community quarantines in 2021 is not an option. Everyone needs to cooperate and help each other practice the minimum health standards like wearing a mask, washing hands, and keeping a safe distance. Businesses also need to make sure that there is proper ventilation in their business spaces. The public and private health sector needs to continue improving the health systems to include a vaccine roll-out. Finally, the government needs to facilitate the transition to the new, but better, normal,” says Chua.
Our challenge is to make sure that our hard-fought gains in 2020 will not be reversed and the economic cost of 2020 will not repeat in 2021,” Chua added.
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