THE International Monetary Fund (IMF) has downgraded its growth forecast for the Philippines this year to 0.6% as the global economy is likely to experience “the worst recession since the Great Depression” due to the coronavirus disease 2019 (COVID-19) pandemic.

IMF growth projections scaled down as pandemic woes continue

The new forecast published Tuesday in its World Economic Outlook report titled “Chapter 1: The Great Lockdown” is significantly lower than its estimate of 6.3% given last year, long before the COVID-19 outbreak.

Yongzheng Yang, IMF resident representative to the Philippines, cited supply disruptions as well as weaker demand from the country’s major trading partners due to the outbreak as reasons for the lower forecast.

“Tighter global financial conditions, weaker public confidence, and lower remittances are also expected to weigh on private consumption and investment,” Mr. Yang said in an e-mail.

“The negative impacts of COVID-19 are expected to be partially offset by policy support. The virus outbreak is assumed to peak in the second quarter of 2020, leading to a gradual recovery in the second half of the year,” he said.

IMF’s latest forecast compares with the 6.5-7.5% gross domestic product (GDP) growth target of the government for the year as well as the 5.9% expansion logged in 2019.

This is, however, better than the flat growth or 1% contraction expected by Finance Secretary Carlos G. Dominguez III. Meanwhile, the National Economic and Development Authority last month gave a -0.6% to 4.3% GDP growth forecast for this year.

This also follows the downgraded 3% growth outlook (from 6.1%) of the World Bank and the 2% (from 6.2%) estimate of the Asian Development Bank, as well as the 4.5% (from 6.2%) forecast by the ASEAN-3 Macroeconomic Research Office.

The 0.6% GDP growth forecast for the country is better than the IMF’s projections for Thailand (-6.7%), Malaysia (-1.7%) and Indonesia (0.5%) but lower than the 2.7% growth expected in Vietnam this year.

Together, the five ASEAN economies are expected to shrink by 0.6% in 2020.

“The output loss associated with this health emergency and related containment measures likely dwarfs the losses that triggered the global financial crisis,” IMF Chief Economist Gita Gopinath said in the report.

REBOUND IN 2021
Meanwhile, the IMF sees Philippine economic growth rebounding to 7.6% in 2021 after “a low 2020 base,” Mr. Yang said.

“Stemming the spread of COVID-19 is of utmost importance. Policies at the moment should focus on both protecting public health and putting people back to work. Getting the virus under control is, if anything, a prerequisite to saving livelihoods,” he said.

“By acting forcefully now with strong actions to stop the spread of infections, complemented by strong economic policy actions to support people and businesses, the crisis can be ended sooner with less human and economic cost,” Mr. Yang added.

Due to “prudent macroeconomic management,” he said the country has enough policy buffers that will allow it to respond to the economic impact of the virus outbreak.

Mr. Yang noted the government has been putting its policy space to good use via its fiscal and monetary responses to the COVID-19’s impact.

“The country has ample room for additional policy stimulus, if needed, given the relatively low level of public debt and well anchored inflation expectations,” he said.

The Bangko Sentral ng Pilipinas (BSP) has announced several stimulus measures to support the economy amid an expected slowdown due to the virus.

Among these measures is a 50-basis-point (bp) cut in key interest rates in March and a 200-bp reduction in big banks’ reserve requirement ratio earlier this month to help boost economic activity.

BSP Governor Benjamin E. Diokno on Sunday also signaled a “deeper cut” in benchmark interest rates to support the economy amid an expected slowdown due to the COVID-19 pandemic and ensure a “soft landing” once the crisis passes.

The policy-setting Monetary Board has cut rates by a total of 150 bps since 2019, almost completely unwinding the 175 bps in hikes it implemented in 2018 amid multi-year high inflation.

The BSP Monetary Board will meet to review its policy settings on May 21.

On the fiscal side, economic managers have identified P1.71 trillion in social amelioration measures to help mitigate the impact of the pandemic and support the economy’s gradual recovery. This is equivalent to about 6.3% of GDP.

Luzon has been under enhanced community quarantine since mid-March, causing major business disruptions and hitting about 70% of the country’s GDP. The lockdown, originally scheduled to end on April 12, has been extended until April 30 with the government noting the outbreak has yet to peak.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the virus already took a toll on the economy even before the Luzon-wide quarantine started.

“Even before the lockdown, tourism, travel, transportation, and other related industries already suffered reduction in business/economic activities amid the COVID-19 outbreak and also amid travel advisories and suffered more during the lockdown that could also drag GDP growth,” he said in an e-mail. — L.W.T. Noble

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