MANILA - The Philippine economy contracted for the first time in two decades in the first quarter, due to the Taal Volcano eruption and the COVID-19 pandemic.
We’re about to enter the third quarter of the year, and Google mobility data show Filipino activity in key economic areas are nowhere near where they were at the start of the year. What does this mean for the economy?
The ABS-CBN Data Analytics Team takes a look at the numbers.
Google collects geographic location data from users who’ve allowed themselves to be tracked. Through this information, Google was able to put together the ‘Google COVID-19 Community Mobility Report’ which was released June 22, 2020. It has a report on the Philippines, and the information provides some insight into how the Filipino population reacted to the COVID-19 pandemic, and how it will continue to react moving forward. The information is limited by user and privacy settings, as well as connectivity.
The reports also measure the number of visits and the length of stay of users in different locations, using ‘the same aggregated and anonymized data used to show ‘popular times’ for places in Google maps.
The entire report used a baseline sample taken between January 3 and February 6, 2020. This means the baseline sample already contains mobility information influenced by the Taal Volcano eruption, which ran from January 12, the day of the eruption, and ran all the way up to February due to the effect of the ashfall and continued volcanic eruption. We will go back to this when we discuss Calabarzon region, home of the Taal Volcano and a sizable chunk of the Philippines’ manufacturing hubs.
For the entire Philippines, activity in retail & recreation areas, including restaurants, cafes, shopping centers, theme parks, museums, libraries, and movie theaters, fell 50 percent from a baseline sample.
Notice the dates on the X-axis. May 11 is nearly 2 months into the lockdown which started on March 15th. It is also five days before May 16th, when most of the Philippines was shifted to General Community Quarantine (GCQ), which is a lighter form of lockdown compared to the enhanced community quarantine. June 1 meanwhile is the start of GCQ in the National Capital Region. June 22 is the end of the study, and 8 days before the end of the first half of 2020.
On May 11, activity was 80 percent below activity from January to February. On June 1, it was still close to 60 percent below the baseline. On June 22, it had improved, but it was still around 50 percent below the baseline. While the recovery of activity between June 1 and June 22 is encouraging, it is still far from what was enjoyed in January and February. Retail & Recreation areas are where consumption happens.
Domestic consumption, fueled by Overseas Filipino Remittances and Business Process Outsourcing Receipts, is a key driver for the economic growth the Philippines has enjoyed over the last 20 years. If these areas do not get back to previous activity levels soon, we cannot expect a swift recovery from the 0.2 percent economic contraction suffered in the first quarter of the year.
The mobility data tell us Filipinos are not going out. The reason or reasons behind their decision to go out can be manifold, from fear of COVID-19 to civil obedience and observance of quarantine rules, to a lack of transport or funds. But the fact remains, they are staying home, and that is bad for the economy.
Consider the Grocery & Pharmacy data. This measures mobility trends for groceries, markets, food warehouses, farmers' markets, specialty food shops, drug stores, and pharmacies. Activity in these areas was down 40 percent in mid-May. By June first, it was at 21 percent below the January to February baseline.
The level of activity in these areas did not suffer as big a drop as retail and recreation, as people were allowed to go to these areas to access basic necessities, provided they observed strict social distancing and curfew hours. This tells us that even in situations where basic needs for survival are involved, Filipinos were reluctant to go out.
Look at the data from Transit Stations and Workplaces. As of June 22, activity in transit stations is down 56 percent, while workplace activity is down 42 percent. The relatively steady line for transit stations is easy to explain. Government has taken extreme measures to ensure public transport areas are controlled. Train lines and jeepneys are not operating. Point to point buses and taxi services are prioritized. All the traditional public transport hubs, including airports and seaports, have been placed under strict controls.
The jagged up and downtrend line for mobility in the workplace meanwhile is a reflection of efforts by the private sector to restart their operations (note that the trend for Sundays is different, causing the deviation from the curve). Government has staggered the reopening of the economy based on transmission threat level and importance to survival.
The food value chain is a top priority to ensure the population is fed. Dine-in restaurants, bars and malls however were given less priority because these set the stage for public gatherings and opportunities for viral transmission. Businesses that have been allowed to continue operating, such as BPOs, banks and groceries, have used work from home and alternating workday schemes to minimize the number of physical interactions between employees.
The information however is very clear, activity is far from first-quarter levels. This means fewer opportunities for businesses and the entire economy. Creating safe ways to transport the masses and mobilize the workforce is a key step in restoring economic activity. Without new solutions, activity levels won’t recover.
Residential activity meanwhile has seen an increase. It is up 23 percent from the baseline period. This is understandable with many Filipinos working or studying from home. The increase might seem low, but keep in mind the methodology of Google. The report uses data collected to measure ‘popular times’ for different locations. It may not be able to capture the information needed to measure increased activity in a residential area, especially if users prefer to keep their home activities private.
Let’s consider specific regions in the Philippines, starting with Calabarzon.
Cavite, Laguna, Batangas, Rizal, and Quezon are collectively known as Region IV-A. This is a key economic hub, home to many economic zones with vast manufacturing and import/export operations. It was also the hardest-hit region by the Taal Volcano eruption, which again happened within the timeframe Google used for its baseline sample.
When we look at the drop in activity in CALABARZON Retail & Recreation areas, Groceries, Pharmacies, Transit Hubs and Workplaces, we should keep in mind that the baseline sample for these areas are likely already lower compared to what these areas usually experience when Taal Volcano is not erupting.
Despite this, the drop from the baseline more or less mirrors the nationwide averages. Retail & Recreation is down 43 percent. Groceries and Pharmacies are down 22 percent. Transit and Workplaces are down 47 percent and 39 percent respectively. Residential is up 23 percent. All of the numbers are as of June 22, when GCQ is in effect, offering Filipinos more opportunity to go out and consume. The confidence is not there.
Consider Central Visayas, home to Cebu and Cebu City, which is sadly emerging as a critical hotspot for COVID-19 outside of Luzon. The drop in activity in Retail and Recreation areas is down 62 percent, 12 percentage points worse than the national average. It is worse in every category. Residential Activity in Central Visayas is also higher, up 30 percent. If this means more Central Visayans are staying at home, the opportunities for transmission of COVID-19 should be less.
However, Region 7 continues to rank high in terms of new COVID-19 cases reported per day. Confidence in these areas is definitely low and people, at least those who have access to the internet on their devices, are not out and about.
Metro Manila also continues to report a high number of new COVID-19 cases everyday. The drop in its level of activities in retail and recreation areas is also worse than the national average, at 58 percent. The same goes for its Transit Stations and Workplaces. Again, the data is limited by Google’s ability to collect location information from its users. But the numbers also show confidence, particularly consumer confidence, is not yet strong here. That is not a good situation for the economic center of the Philippines.
Keep in mind, the reopening of the economy is directly linked to efforts to contain COVID-19. Consider this matrix from the University of the Philippines School of Economics. It details the staggered opening of the economy based on the importance of each sector to sustain the economy and the extent of social contact on the job these sectors require.
As mentioned earlier, these recommendations have largely been followed by the government. Quadrants C and D contain malls, theaters, bars, resorts, casinos, restaurants, and public markets. Reopening these would provide a big boost to consumption and economic activity, but they cannot be reopened if COVID-19 is still running rampant.
Former special advisor to the National COVID-19 Task Force Tony Leachon says maintaining this scheme can soon be a problem. He says "COVID mobility data by Google and Apple showing that majority do stay home except for essential travel. People stay at home and follow the rules during the initial ECQ or lockdown phase and were afraid too of the far-reaching implications of the viral transmission to their families."
"Now, people are going out of their homes because the majority would like to work to earn a living.” Leachon says the onus is on the government to support the reopening of the economy through efforts in “improving healthcare capacity e.g testing, isolation, contact tracing, and quarantine.”
Last week the Philippine Central Bank, also known as the Bangko Sentral ng Pilipinas, decided to cut key interest rates by 50 basis points. It was a surprise decision, particularly since it had already cut interest rates by 125 basis points before the latest cut. Central Bank officials say Monetary Policy easing has already released some P1.4T into the Philippine financial system.
Now, they argue the latest rate cut is aimed at enticing banks and other lenders to lower the cost of borrowing, so consumers and businesses can get back to spending. It also lowers the returns banks can get by parking their finds with either the BSP, or in the bond market.
When asked how the BSP is measuring the expected pick up in economic activity from its monetary easing efforts, Dennis Lapid, Director of the Philippine Central Bank’s Department of Economic Research, said they have started looking at ‘high-frequency data’ to gauge economic activity. “We’ve looked at data, mobility data, from Google and Waze, as a way of tracking physical activity, location activity, as a way of measuring the amount of economic activity in key areas.”
If this is the data they are looking at, it is telling them the Philippine economic recovery is far from taking off.
Central Bank Governor Benjamin Diokno recently revealed the latest forecast for the second quarter. Reacting to S&P’s newest forecast for the Philippine economy, a contraction of 3%, Diokno said “this is better than the International Monetary Fund’s -3.6 percent and the Asian Development Bank’s -3.8 percent.
The S&P forecast for the Philippines falls within the government’s revised projection that the domestic economy will contract at between 2 to 3.4 percent. It is also consistent with the BSP staff’s forecast that Q2 2020 GDP growth would contract between 5.7 percent to 6.7 percent.”
Again, the huge decline in activity based on the mobility data from May and June supports this expectation of a deeper contraction in the second quarter. The fact that activity remains far from levels seen in the first quarter when the economy contracted for the first time in over two decades, suggests the contraction in the third quarter might be significant as well.
If another contraction happens, it would mark the first technical recession for the Philippine economy in nearly 3 decades.
Coupled with the increasing number of COVID-19 cases reported each day, an extended quarantine and economic recession is a grim possibility.