By Beatrice M. Laforga, Reporter
THE PHILIPPINE economy is projected to shrink by 1.9% this year as the coronavirus crisis continues, the World Bank said, estimating 1.2 million more Filipinos will slip into poverty as a result.
In its latest Philippine Economic Update, the World Bank (WB) slashed its gross domestic product (GDP) output forecast for the Philippines to -1.9% from the 3% baseline projection it gave in April and the 6.1% estimated in January.
“This projection assumes containment measures are gradually relaxed in the second half of the year, and economic activity returns in some sectors of the economy,” the World Bank said in the report.
If realized, the Philippine economy will suffer its first annual contraction in more than two decades or since the Asian Financial Crisis in 1998.
World Bank Senior Economist Rong Qian in a press briefing said they expect the economy’s contraction to deepen in the second quarter, and remain in recession until the third quarter before posting “muted growth” in the last three months of 2020.
The economy contracted by 0.2% in the first quarter, as lockdown measures curtailed economic activity in Luzon.
“The trajectory that we are seeing is deeper recession in the second quarter because the ECQ cover most of the second quarter, still a recession in the third quarter as the economy slowly, gradually come out of the ECQ and some sectors can return to business and more or less muted growth in the fourth quarter as the economy start to return,” Ms. Qian said.
For next year, World Bank maintained its 6.2% growth projection it gave in April and estimated a 7.2% growth in 2022 as the economy is expected to make a gradual recovery.
“Future economic growth will be dependent on public investments and a rebound in consumption as incomes recover, and there will also be base effects, given the economic contraction expected in 2020,” the World Bank said.
The Philippines is one of the countries to suffer “the biggest contractions” in East Asia and the Pacific this year, it said. Malaysia’s economy is seen to shrink by 3.1%, while Timor-Leste and Thailand are expected to contract by 4.8% and 5%, respectively.
However, the multilateral lender said the growth projections may be revised as the duration and full extent of the pandemic remains highly uncertain.
Ms. Qian also said the country’s growth trajectory follows the global economy, which is also projected to contract by 5.2% this year before bouncing back in 2021.
In its Global Economic Prospects Report, the World Bank said advanced economies are seen to contract by 7% this year, while emerging market economies will shrink by 2.5% — their first since 1960.
The World Bank said private consumption, the main growth driver for the Philippines, will also slump by 2.6% this year due to lockdown measures that resulted in income losses and lower remittances as other countries were also affected by the pandemic.
Consumption may rebound to 5.7% next year and 6.1% in 2022 “if the pandemic is resolved and containment measures are effectively managed,” it added.
Capital investment may sharply decline by 7.5% this year, reversing the 3.9% increase in 2019, on weak business sentiment.
The Development Budget Coordination Committee (DBCC) on May 27 projected the economy to shrink by 2% to 3.4% this year, before picking up to 8-9% in 2021 and settling within 6-7% in 2022.
World Bank’s Ms. Qian said the Philippines can still achieve upper middle income status by 2022 if the economy will be able to recover in the next two years.
As the economy slumps due to the pandemic, the World Bank estimated 1.2 million more Filipinos will slip below the poverty line this year.
“Poverty is projected to increase to 21.5% based on the middle-income poverty line of $3.20/day in 2020. This is equivalent to 1.2 million Filipinos more falling to poverty from the estimated poor in 2019,” the World Bank said.
It noted poverty incidence may increase by at least 3.3 percentage points this year, assuming there is a loss of two months’ worth of income, or a 16.7% drop in household incomes from seasonal wage and entrepreneurial activities in 2020, and no social protection measures in place.
With economic recovery seen in the next two years, World Bank said poverty rate could slowly decline to 20.4% in 2021 and to 19.1% by 2022.
“The outbreak clearly poses the risk of unraveling some of Philippines’ gains in poverty reduction in recent years,” it said.
However, the latest World Bank projections are higher compared to the estimates it made in April which showed the poverty rate seen to settle at 20.5% in 2020, 19.4% in 2021 and 18.3% in 2022.
The World Bank said the subsidy programs of the government, including the P200-billion social amelioration program, will partially offset the income losses of the poor. However, the cash distribution faced challenges, such as lack of proper data verification, slow implementation, exclusion errors, and logistical problems to reach remote areas.
“If these implementation challenges and delays continue as the government moves on to the next tranche of cash assistance, vulnerable households excluded in the program or did not receive benefits in a timely manner are likely to fall to poverty,” it said.
Moving forward, the World Bank stressed the need for the Philippines to adopt critical reforms to ensure sustainable economic recovery, especially ramping up the digital transformation deemed crucial under the “new normal.”
“The current state of the internet in the Philippines, however, calls for urgent and substantial improvements for the digital economy to play a key role in the economic recovery,” it said.
The World Bank said the country could be a “significant player in the global digital market” as the number of Filipino internet users continue to rise and its domination in the Information Technology and Business Process Outsourcing (IT-BPO) industry.
However, the Philippine digital economy lags behind its peers in the region, with digital adoption on par with its economic development compared to countries across the globe but “performed poorly compared with regional peers,” according to the World Bank.
“Increasing digital adoption and its contribution to economic growth requires government actions to create a conducive and competitive business environment,” it added.