The Great Depression that began with a stock market crash in 1929 and lasted until 1933 scarred a generation with massive unemployment and plummeting economic output.
It reshaped the world economies, shifting migration patterns, and spawning new styles of music, arts, literature and financial landscape. During that era however, world leaders prompted the creation of an array of programs like unemployment insurance, Social Security retirements benefits, and bank deposit insurance that make a repeat unlikely.
The unpredictable and unprecedented path of the COVID-19 which I always referred to as WUHAN-400 plague has drawn parallels with the Depression, in particular with predictions that the rise in unemployment and the percentage drop in economic output could rival those seen in the 1930s.
But for that to happen, the jaw-dropping numbers likely to be recorded in the coming weeks – millions were thrown out of work, double-digit declines in the gross domestic product – would need to be both deep and sustained over years, not months.
Most global economists agreed that there is no specific definition of a depression, but it’s palpably different than a recession in terms of its length and depth. In the 1929 Great Depression for example, the world shed 20% of its jobs over three years, four times the share lost in the 2007 to 2009 Great Recession.
Over the four years of the Great Depression, nearly a third of the global output disappeared. While some economists think the annualized output in April to June period may fall 14% or more, few think that type of decline will persist over time.
Now, fears are growing that the worldwide economic downturn could be especially deep and lengthy, with recovery limited by continued anxiety. The world is almost certainly ensnared in a devastating decline delivered by the WUHAN-400 plague.
The contagion is above all a public health emergency. So long as human interaction remains dangerous, the business cannot responsibly return to normal. And what was normal before may not be anymore. People may be less inclined to jam into crowded restaurants and concert halls even after the virus is contained.
The abrupt halt of commercial activity threatens to impose economic pain so profound and enduring in every region of the world at once that recovery could take years. The losses to companies, many already saturated with debt, risk triggering a financial crisis of cataclysmic proportions.
The Philippine lawmakers enacted on March 24, 2020 Republic Act (RA) No. 11469, or the “Bayanihan to Heal as One Act”, granted President Rodrigo Duterte a raft of extraordinary powers to mitigate the economic fallout from the new WUHAN-400 plague.
Duterte will be able to access the 200 billion pesos ($3.93 billion) from government-owned and controlled corporations (GOCC) funds in emergency subsidies to 18 million families who are indigent, low-income households and employed under “no work, no pay” arrangements that have lost their sources of income amid the pandemic spawned by the WUHAN-400, the largest financial aid package ever granted to Filipino household in Philippine history. Every qualified household will be given ₱5,000 to ₱8,000 monthly over the next two months. The law further authorized him to intervene in private business operations and circumvent procurement rules, among other measures, to fight the WUHAN-400 plague.
Duterte, who has been criticized for not moving fast enough to contain the spread of the virus, locked down the country’s main island of Luzon last week, barring about 57 million people from leaving their homes and restricting transport and business operations. The island accounts for around 75% of the economy.
Under the said law, Duterte can “direct the operation” of privately owned hospitals, health facilities, and “other similar establishments” to house workers and serve as quarantine areas, as well as commandeer transport companies to ferry health workers. The law also stated that current management will be maintained and companies will be compensated.
The RA No. 11469 cemented the President’s take over enterprises that “unjustifiably refuse” or signify they can no longer run their businesses, including hotels and telecoms, an element that alarmed the private sector.
Moreover, Duterte can skip procurement rules to speed up the acquisition of health care equipment amid the rising number of coronavirus cases in the country. The Ministry of Health reported 2,633 cases, 107 fatalities, and 51 recoveries as of this writing.
Stock markets have reflected the economic alarm. The Philippine Stock Exchange (PSEi) fell over 56% from its ceiling on 29-Jan-2018 at 9,078.37 to its deepest so far on 19-Mar-2020 at 4,039.15 points, as investors braced for worse conditions ahead. That followed a brutal March, during which a whipsawing PSEi fell 13.30%, even worst daily loss in October 2008. PSEi volume exhausted to the lowest since 2nd week of February 2020 and ADX already lost momentum. It’s expected that the stock markets across the globe are likely to get worse before they get better.
CONCLUSION: Until today, the said financial aid is not yet received by the supposed to be beneficiaries. Since 15 days past on total lockdown, most beneficiaries didn’t receive the relief goods and the said relief already dried up, people are hungry and started to form mass actions. If the Duterte administration failed to address these hungry citizenries, expect riots on every corner of the streets. Secondly, is the ₱5,000 to ₱8,000 financial aid reached to the real recipient? Or to the deep pocket of their political allies? Only time will tell.
DISCLAIMER: I’m not a Certified Financial Planner. Published herein is my personal opinion and should not be construed as a recommendation, an offer, or solicitation for the subscription, purchase or sale of these securities.
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