Virus Missteps Could Make Philippines Into Asia’s Laggard

Snaking queues at Manila food banks have become a common sight as the economy continues struggling a year after the Philippines’ first coronavirus lockdown. It’s a sharp contrast to 2018, when hundreds lined up for the grand opening of Uniqlo Co.’s Global Flagship Store in Manila, its largest outlet in Southeast Asia.

Over the last decade the Philippines had managed to throw off its mantle as the “sick man” of Asia, with its 109-million strong population driving a consumption-led economy. An outsourcing boom and remittances from legions of citizens working abroad helped raise incomes and lifted at least 2 million Filipinos out of poverty.

But the pandemic has exposed structural weaknesses that the boom papered over, including a decentralized health-care system and rampant inequality. The Philippines suffered a record economic slump last year and its sluggish recovery was underscored again on Tuesday, when the government cut its growth outlook for this year and next.

Virus Missteps Could Make Philippines Into Asia’s Laggard

“There’s not much momentum left in this once juggernaut economy,” said Nicholas Mapa, economist at ING Groep NV in Manila. Consumer sentiment is “deep in the red” amid high unemployment and underemployment, he said.

The Philippine economy won’t regain its pre-pandemic level until the end of 2022, said Katrina Ell, an economist at Moody’s Analytics Inc. in Sydney. In contrast, China, Taiwan and Vietnam already have returned to previous output levels, while South Korea, Indonesia and Thailand should do so this year, according to Ell.

“This makes the Philippines the clear laggard in Asia,” she said.

Virus Missteps Could Make Philippines Into Asia’s Laggard

Though it implemented one of the world’s strictest lockdowns – including a shutdown of mass transport and a ban on minors and senior citizens in public spaces – Philippine authorities only managed to quell the outbreak for a few months before a fresh surge in cases in March forced renewed restrictions.

The economy continued shrinking in the first quarter and is expected to be among the slowest in Asia to recover, leaving lasting scars: Even by 2025, output will remain 11.5% below what it would have been if pre-pandemic trends had continued, according to Fitch Solutions Inc.

Fragmented Response

The Philippines’ handling of the pandemic was hampered by a 1991 law that made city, town and village leaders responsible for the health system. Without uniform guidance, village-level health teams often follow rules set by mayors or chieftains, resulting in a fragmented response to Covid.

When Jaypee Sanchez, 33, caught the virus in March, his district’s contact tracer told Sanchez’s close associates that he had tested positive -- and asked them to call others they had interacted with.

“Tracing stops with close contacts. It didn’t include establishments I’ve been to,” said Sanchez, who’s from the Manila area. “It’s confusing and sad.”

The situation worsened with the mass return of migrant workers who faced loose quarantine requirements and unreliable Covid testing, even as more contagious variants of the virus took hold. The Philippines has recorded more than 1.1 million Covid-19 cases, the second-most in Southeast Asia.

Managing Risk

Life in lockdown has worsened already stark inequality. As the virus spread, relatively affluent Filipinos worked at home, ordering in groceries, prescriptions and wine. Meanwhile, the unemployed grasped at odd jobs as delivery riders or online sellers, with many yet to rejoin the labor force. The country is expected to suffer the highest unemployment rate this year among major Asian economies, according to a Bloomberg survey.

With infections easing from last month’s record, the government now is opting for more targeted restrictions than the blunt lockdown that closed 75% of the economy last year. Mass transport is operating in a limited capacity, and work in most sectors continues.

This time, “instead of avoiding the risk, we are managing the risk,” Economic Planning Secretary Karl Chua said Tuesday.

Even with restrictions loosened, Google data show Filipinos have been the least mobile in Southeast Asia. That’s an ominous trend for household consumption, which makes up more than 70% of the economy.

Shots in Arms

The government is pinning its hopes on vaccines, with total deliveries expected to reach 21.8 million doses this quarter. Nearly 3.3 million shots had been administered as of Tuesday, with the pace improving from the week before.

“Vaccination is progressing slowly, due to the government’s less proactive approach,” Nomura Holdings Inc. economists Euben Paracuelles and Rangga Cipta wrote in a recent note. Only about 20%-25% of the population will be vaccinated by year-end, they said, compared to the government’s 50% target.

Another half-million doses arrived from Sinovac Biotech Ltd. on Thursday. The government also is slowly implementing digital contact tracing.

“It’s critical that the government improves its Covid-19 management,” Ell of Moody’s Analytics said. “The Philippines is still in the thick of the crisis.”

©2021 Bloomberg L.P.

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