Philippine Markets Daily

MONDAY MACRO: This metric came down from its all-time highs, and people are back at work…an economic recovery is likely on the horizon

September 7, 2020

The “Ber” months have finally arrived, marking the start of the holiday season in the Philippines. Typically, this is the time when Filipinos start their Christmas shopping and begin putting up Christmas decors. This is also usually when malls start putting up Christmas bazaars and conduct markdown sales.

This year will be different, though. The coronavirus pandemic hasn’t just disrupted the way consumers behave, it has also caused many businesses to close down, affecting millions of people’s livelihood.

The economic metric we’re discussing today reached its all-time high in Q2 2020, raising concerns about the Philippines’ ability to grow back to pre-COVID levels. The metric recently reported an improvement, as the government works toward opening the economy once more amid the pandemic.

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To reduce its COVID-19 cases, the Philippine government has implemented one of the strictest countermeasures in Asia since mid-March.

For example, workers should be able to show proof of employment or business in checkpoints scattered throughout Metro Manila and nearby provinces before they are allowed to enter.

Any person who leaves a contained community must be checked for symptoms of COVID-19. Health authorities would then issue a certification and endorse them to the local government where they plan to go. The travelers must also undergo a 14-day home-based quarantine upon reaching their destination.

Mass gatherings were also prohibited and alternative work arrangements were made, such as work from home, compressed work weeks, staggered work hours, and skeletal force systems.

However, not all industries were built to survive a pandemic. Many businesses were forced to permanently shut down, while others had to let go of employees. As a result, the Philippines’ unemployment rate skyrocketed to nearly 18% in April 2020, the highest it has been since its 14% peak in 2002.

As we mentioned in our June 22nd article, a high unemployment rate is concerning because fewer people are receiving regular paychecks, lowering the aggregate consumption level of the economy. When that happens, businesses have no reason to expand, dampening economic growth.

As the government stressed that the economy could not afford a prolonged enhanced community quarantine, it decided to relax the rules and start allowing some businesses to operate at limited capacity, mainly in key cities such as those in the National Capital Region.

Transitioning to the modified general community quarantine (MGCQ) in June enabled more businesses to operate, providing them the opportunity to generate cash flows and avoid a liquidity crunch in the near term.

Analysts were expecting the unemployment rate to reach 23% in July, with the majority of the expected higher unemployment coming from the newly graduated students entering the workforce.

Fortunately, with the economy slowly opening up and businesses being able to adapt to the changing government guidelines, the Philippine unemployment rate has come down to 10.0% in July or an equivalent of 2.7 million people newly employed.

This would mean that as the economy further opens up the economy, employment numbers will likely see further improvement moving forward given the government’s reluctance to return to MECQ for its key cities.

Furthermore, online businesses have grown by 4,000% as businesses attempt to find ways to interact with customers without physical contact. Because of this, the transition of businesses to online platforms has aided in the continuity of their operations, reducing the need to downsize its workforce.

That said, contrary to what some investors are thinking, the Philippine economy is not deep into the recession as this economic contraction is not credit-driven as we have identified in our August 10th article.

About the Philippine Markets Daily
“The Monday Macro Report”

When just about anyone can post just about anything online, it gets increasingly difficult for an individual investor to sift through the plethora of information available.

Investors need a tool that will help them cut through any biased or misleading information and dive straight into reliable and useful data.

Every Monday, we publish an interesting chart on the Philippine economy and stock market. We highlight data that investors would normally look at, but through the lens of Uniform Accounting, a powerful tool that gets investors closer to understanding the economic reality of firms.

Understanding what kind of market we are in, what leading indicators we should be looking at, and what market expectations are, will make investing a less monumental task than finding a needle in a haystack.

Hope you’ve found this week’s macro chart interesting and insightful.

Stay tuned for next week’s Monday Macro report!

Regards,

Angelica Lim
Research Director
Philippine Markets Daily
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