Saturday, March 28, 2020

BWorld 423, Estimating electricity and growth slowdown Q1 2020

* My article in BusinessWorld on March 26, 2020.

The Independent Electricity Market Operator Philippines (IEMOP) sent a media advisory about electricity supply-demand in weeks two and three of this month and the numbers are not good. There was a huge decline in average demand of 2.03 gigawatt (GW) from March 15, the start of Metro Manila quarantine or lockdown from the rest of Luzon. Consequently, prices at the Wholesale Electricity Spot Market (WESM) also declined.

I checked their website to get data until March 24 and the decline in demand has continued — peak demand now below 11 GW, power plants are ramping supply down, while prices remain below P2/kWh (see Table 1).

Last week the President extended the quarantine to the entire Luzon. Many businesses have shut down, public transportation from buses to jeepneys, taxis, Grab, tricycles, almost all domestic flights, and boat trips are grounded.

The effects are felt in the stock market and the Philippines has the second worst-performing markets in the Asia Pacific Region, both year to date (Ytd, Jan. 1 to March 25) and the past 52 weeks. The PSE is down from its peak of 8,400+ to 5,000+ this week (see Table 2).

I attempt to estimate potential GDP growth or contraction (“negative growth”) in the first quarter (Q1) of 2020. Electricity demand is a good proxy for GDP growth. I took the average demand for weeks two and three to represent full March 2020 power demand. The percentage decline is about -1.4%, far from the projected full year 2020 growth of around 5-6%.

Using the same percent changes in electricity demand, I estimated both nominal and real (deflated) GDP values for Q1 2020 (see Table 3).

That is nearly P90 billion worth of unrealized production in goods and services in Q1 alone, an economic loss which translates to jobs losses. A continued and prolonged lockdown nationwide will produce even higher contraction in Q2, a -3% change may be possible. Assuming modest growth in Q3 and Q4, that will leave the full year 2020 growth to be in the vicinity of 0-2% growth.

We are facing and confronting three wars or conflicts here. First the China or Wuhan virus itself. It is actually easier to deal with because global science never ceases to find treatments.

Second is economic hysteria, the business and economic shutdown and job losses, slumping stock markets that are happening.

Third is political dictatorship, from local to national governments. I heard stories at the barangay and rural levels for instance that LGUs and PNP can impound and confiscate tricycles or jeeps for moving during quarantine. Our moves are restricted without a quarantine pass, there is an Emergency law. And if a vaccine will be found, we will soon be required to have Vaccine pass before we can go out, etc.

We should have more test kits and laboratories, test as many people as possible, end the lockdowns, and quarantine only the sick, not the healthy. The healthy should keep working while minding social distance and avoiding the crowds, keeping proper hygiene. This is a better scenario than continued economic hysteria and looming political dictatorship.

On another note, my lawyer friend, Kristine Alcantara and her business partners at TheIncubatorAtAIM have developed the WeTrace app, a good initiative to help public and private health authorities trace and contact quickly the virus infected and the people near them. I hope this initiative will get traction.

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