Wednesday, March 25, 2020
NORDCHAM x PSA Philippines Consultancy, Inc. (PSA)
Webinar: Updates on the COVID-19 Situation
Presented by: Greg Wyatt, Director of Business Intelligence
There are a few key contexts to keep in mind when discussing the COVID-19 outbreak, and our outlook for the future.
1. Confirmed cases are less than the number of actual cases, which is a sign of undetected transmission
· The DOH has been very open about this, with Sec. Duque stating that the actual number of cases is like two times higher. This is probably a bit of an underestimate.
· We know that roughly 40% of cases have no travel history or contact with known cases. There is some difficulty in detecting clusters. This is distinctly different than for example the cases in Singapore, where they can draw clear transmission clusters. This suggests community transmission.
· There is a lack of testing capability and limited hospital capacity. Not even mild cases are being tested right now, with priority on severe cases and home quarantine for the rest.
· That the Philippines has a relatively high death rate (~6%) is another sign that the healthcare system is skewed towards detecting severe cases.
2. Testing capacity has been limited and will remain comparatively limited to other countries
· Philippines has tested far fewer people (1,622 as of March 24) than South Korea (>330,000), Thailand (~7,000), Vietnam (>15,000), or even Indonesia (~2,000).
· The DOH has stated themselves that they are unable to measure the effectiveness of the lockdown due to a lack of testing capacity.
· The priority is on severe cases and frontliner (citizens have also scrutinized that some politicians seem to also be included as a priority).
· There are efforts being made to increase testing capacity. There are five sub-national laboratories that are now able to conduct testing, aside from the RITM. The RITM has capacity for about 1,000 tests/day.
· Money is available; that is not the issue. The issue is that there is a global shortage of testing equipment and personal protective equipment, as well as a limited supply of skilled personnel.
3. The healthcare system is under strain
· Many hospitals are reporting that they have staff in quarantine, including 592 staff the two St. Luke’s hospitals.
· Hospitals are consistently asking for private donations of personal protective equipment and other basic supplies.
· Mild cases are being sent home to quarantine at home.
· There have been reports that emergency rooms are consistently full.
· Hospitals have been cancelling outpatient visits and elective surgeries.
· Five private hospitals have also stated that they are at full capacity for COVID-19 patients and will not admit further cases at this time.
· The limited capacity of the healthcare system further underscores why social distancing measures need to be implemented early and taken seriously.
· The Philippines has some very excellent medical care available; the problem is it does not have a lot of medical care available.
· The authorities want to set up 3 hospitals as COVID-19 facilities; which would hopefully free up some other hospitals to attend to non-COVID-19 cases.
· DOH has been slowed down by bureaucratic issues – UP testing kit is still undergoing approvals.
· DOH has limited tools as medical sector here is heavily reliant on private sector.
· Healthcare system is not yet “overwhelmed” but is “under severe strain.”
· DOH keeps talking about 100,000 testing kits
· Those kits will not be able to test 100,000 people. Ideally you might be able to test 50,000 people (2 tests per person) but probably even less as not all kits are equally accurate.
· Unlikely that all kits have arrived
· Testing costs are covered but hospitalization and treatment costs will fall onto patients.
· There have actually been two lockdowns so far.
· The first, was “lockdown lite” from March 15 to 16, which appears to have been aimed at keeping the economy running while instituting a quarantine.
· This was announced several days in advance and humanitarian and economic considerations seemed to be at the forefront of that decision.
· There were a lot of criticisms regarding the advanced announcement, as well as uneven implementation.
· Had we stuck with this it would have been unlikely to eliminate the virus from Luzon but potentially would have slowed it down and bought time for the healthcare system.
· However, it became pretty clear early on that this “lockdown lite” was not going to work.
· The second lockdown, the Enhanced Community Quarantine, is the state we are presently in since March 17 and set to continue until mid-April.
· This is a very serious measure and has a chance of actually stopping the spread of the virus completely.
· Economic and humanitarian concerns are now paramount with businesses shuttered.
· There have also been some concerns about political and social unrest but as of now we do not see any clear indications of that, although there are numerous entities that are preparing for that contingency. We have also noted a lot of fake news related to this concern.
· The rate of policy change in the beginning made it difficult to figure out what was happening; but now it appears things have settled into a new temporary normal and organizations can get into some sort of routine.
· Impact Estimates
· BSP Governor Benjamin Diokno told reports on March 23 that the BSP projects that the Philippine economy might grow from 5-5.5% in 2020, down from an earlier estimate of 6.5-7%, but still the highest among ASEAN-6 countries. This estimate is pretty optimistic – expecting a U-shaped recovery starting in Q3 2020 with full recovery by 2021.
· S&P’s estimate is more conservative, forecasting GDP growth at 4.2% and is lower than that forecast for India and Vietnam.
· Capital Economics estimate is even more dire and predicts Philippine GDP will grow at an average of just 0.325% in 2020, with up to a 3% contraction in Q2 as well as a 1.1% contraction in Q3, and a slight recovery in Q4.
· NEDA’s estimate is most up-to-date and is predicting fairly significant declines to GDP and employment.
· “Economics in the time of COVID-19,”Richard Baldwin and Beatrice Weder di Mauro
· Predict 6.3% loss of GDP in “other parts of Asia”
· Recovery will be different across sectors
· Manufacturing will likely recover in a ‘V-shaped’ graph: a quick, sharp return to previous production levels and growth paths, once supply chains are unkinked and quarantines are ended
· For the services sector, the recovery is more likely to be ‘L-shaped:’ consumers who skipped restaurant meals or vacations in 2020 are unlikely to take twice as many trips or eat twice as many dinners in 2021.
· See an uptick in telecommunications as work from home becomes more normalized.
Fiscal Package and Special Powers
· Filipino economists were recommending a robust fiscal stimulus package (although not a traditional fiscal package), more focused on protecting vulnerable first with a traditional stimulus to come later.
· The authorization yesterday was pretty well in-line with these recommendations.
· Provides for direct assistance to needy families.
· Provides compensation for health workers that become ill, as well as compensation to the families of any health workers that die due to COVID-19.
· The Philippines has a low debt-to-GDP ratio (41.5%), and has a relatively high interest rate (3.25% overnight repurchase rate), meaning that the Central Bank has monetary policy “ammo” to use.
Disruptions won’t end with the end of the lockdown
· It is clear that there will be some level of disruption that continues after the lockdown is lifted. It is not clear exactly to what extent and how long those disruptions will persist.
· Medical experts are arguing that it will take a vaccine to get this under control (18 months, maybe more).
· It is clear that there is going to be some global economic impact, but it is still unclear how bad it will be. OFWs in Europe and the U.S. will be impacted, and we may even see an impact on traditionally robust remittances.
· The cruise ship industry in particular is one of the big losers and that represents many thousands of OFWs.
· Responses in different countries are happening across a spectrum.
Three Different Scenarios
A note on the difficulties in modeling.
There are a lot of difficulties modeling out the outbreak as well as future scenarios.
First, countermeasures are the hardest thing to model.
Most models assume a worst-case scenario with no countermeasures. Other models just follow another country’s trajectory (like Italy). Some models attempt to factor in social distancing, but this is at the high end and another issue is we don’t know the true death rate because we have very little visibility over asymptomatic (or even mild) cases.
Theoretically, this is within the reach of science with antibody testing. The DOH itself says that the effectiveness of the lockdown cannot be measured due to a lack of extensive testing.
Scenario 1: Wait for Herd Immunity
o “Let the virus work through the population”
o Potentially the most economically damaging scenario; and potentially the most deaths
o Countries that have the virus in control would not want to deal with a country that is letting the virus “run through the population”
o There will be parts of the world that follow this path simply because they don’t have an alternative available.
Scenario 2: The Hammer and the Dance
o The Hammer: lockdown and other severe countermeasures to buy time and prevent growth in transmissions.
o The Dance: choosing the appropriate policies to stop spreading but also minimize disruptions. So far it is unclear what these policies would look like.
o Some countries appear to be doing well: China, South Korea, Singapore, Taiwan, Vietnam. These countries seem to be using some combination of:
§ Aggressive testing
§ Extensive contact tracing
§ Case isolation and household quarantine
§ Large scale disinfection
§ Mobile Phone Tracking
§ Travel restrictions or 14-day quarantine of arrivals
§ Hand washing and sanitizing public education
§ Temperature checkpoints
§ Banning gatherings of a certain size
§ Other social distancing measures
§ Antibody testing to find the immune, have them exit quarantine faster
o Vietnam as a Model of Success?
§ Not exactly “mass testing” but much more than in the Philippines; both countries have limited resources for this
§ Leadership was quick to identify Coronavirus as a major threat in January
§ Infected are isolated
§ Aggressive contract racing is pursued
§ Forced quarantines are in place
§ Conscription of medical students and the retired
§ 14-day quarantine on arrival
§ Relentless and clever education messaging
§ Cheaper, locally produced kits utilized
§ Vietnam’s political economy/history definitely makes the implementation of some of these counter measures easier
Scenario 3: Multiple Lockdowns
o Dr. Ferguson, Imperial college of London: “We show that intermittent social distancing – triggered by trends in disease surveillance – may allow interventions to be relaxed temporarily in relative short time windows, but measures will need to be reintroduced if or when case numbers rebound.”
o Globally, this is a pessimistic scenario, but the Philippines has not yet shown the capability to do some of the things that have succeeded in other countries, like mass testing.
Tips – Prepare for 18 Months of Disruption
· We aren’t looking at 18 months of lockdown, but 18 months of various disruptions
· There will be businesses that do not survive this crisis
o Businesses heavily reliant on tourism, and restaurants will be heavily impacted with many properties having to close.
o Across all sectors collecting receivables is likely to become more difficult.
· You should be trying to get really good at teleworking as an organization and as an individual
o Teleworking is itself a disruption for most businesses, but there will be ways to improve your organization and your own productivity with teleworking.
o Online transactions are not the norm in B2B interactions in the Philippines and may finally become the norm.
· Businesses Need to Adapt
o Tourism – Try to increasingly target the domestic market
o Restaurants – have a good delivery option ready to go
· Move services and other functions online