By Luz Wendy T. Noble

THE bigger-than-expected impact of lockdown measures on the economy is prompting the International Monetary Fund (IMF) to revisit its growth outlook for the Philippines.

“In light of the newly released Q1 growth outturn, we are reviewing our forecasts for 2020 and 2021. The impact of community quarantine on economic activity seemed to be larger than we had expected,” IMF Resident Representative to the Philippines Yongzheng Yang told BusinessWorld in an e-mail on Friday.

The Philippine economy contracted by 0.2% in the first quarter, which saw the implementation of the first two weeks of the enhanced community quarantine (ECQ) in Luzon. The economy is expected to be hardest hit in the second quarter, as the lockdown continued through May.

In April, the IMF projected the Philippines’ gross domestic product (GDP) to grow by 0.6% this year, and by 7.6% in 2021. In November, this year’s GDP growth was projected at 6.3%.

The IMF in April forecast the global economy would contract by 3% this year, which is said to be the steepest downturn since the Great Depression. A longer crisis may even push the global economy into a deeper contraction of 6% this year, and zero growth in 2021.

“With no medical solutions yet, this Great Lockdown is not going away anytime soon, and the outlook is beginning to worsen relative to our already dire forecast for 2020,” IMF Chief Economist Gita Gopinath said in a recent tweet.

Mr. Yang said the updated growth forecast for the Philippines will be released in late June, which would take into account the extension of the ECQ, albeit modified, for Metro Manila. Other areas in the country were placed under general community quarantine.

Last week, the Development Budget Coordination Committee said GDP this year could contract by 2-3.4%, lower than the -1% to zero growth it assumed in late March. This is also a stark difference from the 6.5% to 7.5% target growth this year after the six percent growth in 2019.

Moving forward, Mr. Yang said that the most critical constraint on growth is still the outbreak as it leaves governments to go for community quarantines and other measures to contain further spread, resulting in hampered economic activities.

“The more quickly the spread of the virus is brought under control, the more quickly the economy can recover,” Mr. Yang said.

The virus has already sickened over 4.7 million worldwide and has killed over 312,000.

As of Monday, the number of local infections reached 12,718, while deaths stood at 831.

“The current global recession is adding pressures on the Philippines’ recovery as export demand, especially for tourism, and remittances will remain weak for some time to come,” Mr. Yang said.

Despite these challenges, he believes the country’s macroeconomic fundamentals remain strong.

“The strong macroeconomic fundamentals that the Philippines has built in recent years have enabled the country to deliver strong policy support to the affected citizens and businesses in this difficult time,” Mr. Yang said.

“The Philippines has considerable room to provide more fiscal and monetary stimulus to the economy, given the country’s relatively low public debt compared with peer countries and well-anchored inflation expectations.”

Amid the lockdown, the government has implemented a P200-billion cash grant program for poor families and the P51-billion wage subsidy program for smaller businesses.

The central bank has slashed policy rates to record lows and lowered reserve requirement for banks in a bid to cushion the impact of the pandemic and to boost liquidity during the lockdown. It has likewise rolled out regulatory measures to help small- and medium-sized enterprises (SMEs), such as allowing banks to use SME lending as an alternative for reserve compliance.

“These and future policy measures will help support consumer and business confidence, offsetting some of the negative impact of declines in export demand and remittances,” Mr. Yang said.

The government should also continue to “focus on strengthening the capacity of the healthcare system, protecting vulnerable low-income households, and supporting small- and medium-sized firms,” he said.

“Robust implementation of policy measures will also be critical for policy effectiveness. Accelerating the planned introduction of the national ID system will be especially important in this regard,” he added.

Registration for the national ID has been pushed to October, from its original June target. Lawmakers urged the government to fast-track the national ID system in order to address some problems related to the distribution of cash grants and wage subsidies.