By Bjorn Biel M. Beltran
Special Features Assistant Editor, BusinessWorld
As if to make a grim situation worse, the coronavirus disease 2019 (COVID-19) pandemic that has gripped the world in a deadly vice brought about an economic standstill.
With many of the globe’s major cities on lockdown or under quarantine measures, businesses ground to a halt. Fewer cars on the road mean a sharp drop in the price of oil, while retailers and manufacturers face bankruptcy due to the ceasing of operations.
In fact, the International Monetary Fund (IMF) has announced the start of a global economic recession, or a period of economic decline where output falls for two successive quarters, pointing out the long-term ramifications of the sudden halt in the world’s economic activity such as joblessness.
“It is now clear that we have entered a recession – as bad as or worse than in 2009,” IMF Managing Director Kristalina Georgieva said, with the hope that there could be a sizeable rebound if countries can sufficiently contain the virus.
“This is a very big crisis and it’s not going to be sorted out without a very massive deployment of resources. The length and depth of this recession depend on two things — containing the virus and having an effective, coordinated response to the crisis,” she said.
In the Philippines, the National Economic and Development Authority has already gone ahead to slash the country’s growth projections for the year, with gross domestic product (GDP) expected to fall between -0.6% and 4.3% for 2020. This is a far cry from the government’s previous target of 6.5-7.5% prior to the crisis.
In its Regional Economic Update report for April titled “East Asia and Pacific in the Time of COVID-19”, the World Bank gave a 3% forecast for the country’s GDP growth this year, down from the 6.1% projection it gave in January.
That growth is seen to pick up up to 6.2% next year, maintained from the January projection, and will accelerate to 6.4% in 2022, higher than the previous 6.2% forecast.
These projections reflect the multilateral lender’s baseline scenario. In its lower case forecasts, the World Bank sees the economy contracting by 0.5% this year but recovering to a 4.1% growth next year.
Due to the month-long Luzon lockdown, the World Bank expects a sharp decline in domestic consumption in the first semester, which could be further dampened by the slower inflow of remittances, delayed implementation of the government’s infrastructure program, postponed investments from the private sector, as well as a negative impact on exports due to travel restrictions and disruptions in global supply chains
The World Bank said its baseline forecast of three percent GDP growth this year assumes that economic activity in the country will resume in the third quarter. Risks to this forecast, which could result in a contraction of as much as 0.5% in its lower case scenario, are “a rapid surge in confirmed cases resulting in a prolonged community quarantine, lengthier disruptions to government and business activities, loss of incomes, and a protracted weakening of the public health system.”
“In this case, economic growth could contract in 2020 driven by a drastic slowdown in domestic consumption and investment, with echo effects into 2021. External risks could derive from a prolonged containment of the virus globally, leading to a global recession which will impact the Philippines through manufacturing, trade, tourism, and remittance channels,” the World Bank said.
Meanwhile, BangkoSentral ng Pilipinas Governor Benjamin E. Diokno recently told reporters that the situation would likely result in a recession, with the second and third quarters of the year seeing contractions in GDP growth.
“The second quarter will probably be negative, the third quarter, maybe around negative also and then we start picking up by the fourth quarter,” he said.
Getting the country to get back on track relies on swift and decisive measures that must be undertaken by the government and its economic regulators not only to contain and control the coronavirus situation, but also to stimulate the country’s economy.
Currently, the central bank has cut its benchmark rate by 50 basis points (bps) and eased rules for lenders. It is also buying P300 billion in government securities. The Monetary Board also cut the reserve requirement ratio for universal and commercial lenders by 200 bps to 12%.
The policy-setting body has authorized Mr. Diokno to slash the ratio by as much as 400 bps this year amid the pandemic.
“We’ve done a lot on the monetary side,” he said. The government needs more fiscal measures “than what is done so far.”
Such measures, as well as the Bayanihan to Heal as One Act, which authorized the President to realign or reallocate as much as P275 billion in national budget and off-budget outlays to the government’s emergency subsidy program, aim to support economic activity in the short term, providing relief to some 18 million Filipino households most affected by the pandemic.
However, as of April 2, there are 2,633 confirmed cases of COVID-19 all over the country, with the number expected to see a huge surge as more testings are completed. One hundred seven Filipinos have died due to the virus, and there is no end yet in sight. Whether the Philippine growth narrative can endure the storm brought about by the pandemic, only time can tell.
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