THE Philippine economy is seen growing at a slower pace this year due to the fallout from the coronavirus disease 2019 (COVID-19) outbreak, and may even contract by as much as 0.5% if the Luzon-wide enhanced community quarantine will be extended, the World Bank said in a new report.
The World Bank gave a 3% forecast for the country’s gross domestic product (GDP) growth this year, down from the 6.1% projection it gave in January, according to its Regional Economic Update report for April titled “East Asia and Pacific in the Time of COVID-19” published Tuesday.
Meanwhile, growth is seen picking 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.
These projections compare to the government’s goal to notch 6.5-7.5% GDP growth for 2020-2022.
Despite the 2020 forecast downgrade, the Philippine economy is still seen to be the third-fastest growing economy this year along with Myanmar’s 3% and is only behind Lao PDR’s 3.6% and Vietnam’s 4.9% and faster than 1.3% regional average expected for the whole developing East Asia and Pacific excluding China, based on the baseline scenario. The region is expected to contract by 2.8% this year in the lower case scenario.
“Real GDP growth is projected to significantly decelerate from 5.9% in 2019 to 3.0% in 2020 due to the impact of the COVID-19 outbreak and the associated community quarantine,” the report read.
“Nevertheless, economic growth is expected to accelerate rapidly in 2021-22 as global conditions improve, and with more robust domestic activity bolstered by the public investment momentum and a boost from 2022 election-related spending.”
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.
It said this will likely significantly affect those working in the informal sector.
Meanwhile, Socioeconomic Planning Secretary Ernesto M. Pernia said yesterday the economy might contract in the last two quarters of the year, which will already be considered a recession, if the enhanced community quarantine will be extended.
“[Possibly,] zero growth rate or slightly negative [in the] third quarter, something similar, depending on if the enhanced community quarantine will be extended… [This] is still a speculation. We hope that it’s not negative,” Mr. Pernia said in an ABS-CBN News Channel interview yesterday when asked on his projections for third and fourth quarter GDP growth.
The National Economic and Development Authority earlier said it sees GDP growth of between -0.6% and 4.3% this year due to the virus outbreak.
The World Bank said besides “immediate public health response to prevent, detect, and contain local transmission” of COVID-19, the government needs to implement fiscal and monetary stimuli to cushion the economy against the negative impact of the virus and protect the vulnerable population.
“Specifically, the timely execution of public investments, targeted financial support to the poor and vulnerable sectors can restore confidence and soften the negative impact of the outbreak,” it said.
The World Bank said the country should also strengthen its health care system to prepare for future shocks similar to COVID-19 aside from accelerating structural reforms to improve the business environment and competition in the country and boosting productivity growth.
“Sustained support must be ensured for bills that improve competitiveness, such as the passage of the Corporate Income Tax and Incentives Rationalization Act, and amendments to the Public Services Act,” it added.
Despite expectations of slower growth, the World Bank still sees the country’s poverty incidence continuing to decline to 20.5% this year and to 18.3% in 2022, from 21.9% in 2018.
The World Bank also sees inflation settling at two percent this year, the current account to record a deficit of 0.3% of GDP and net foreign direct investments to decline to 0.5% this year of GDP.
The country’s budget gap is likewise expected to balloon to 3.9% of GDP from 3.5% in 2019, while outstanding debt is seen reaching 36.9% of GDP from 35.7% last year, due to increased spending and borrowings amid the COVID-19 crisis. — BML