PH economy to contract 1.9% this year: WB

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The World Bank projects that the Philippine economy will contract by 1.9 percent in 2020, amid the natural disasters experienced earlier this year and the disruptions brought by the coronavirus disease 2019 (COVID-19) pandemic.

The World Bank’s latest projection for the Philippines, as indicated in the Philippines Economic Update (PEU) and Global Economic Prospects (GEP) reports released yesterday, is a sharp contrast from its previous forecast in January of 6.1 percent.

“The Philippine growth path follows a similar pattern of the global economy that is expected to contract by 5.2 percent in 2020, the deepest global recession since World War 2 impacted by widespread social distancing measures, a sharp tightening of financial conditions, and disruptions to global value chains and international travel,” Rong Qian, World Bank senior economist, said in a virtual briefing yesterday.The World Bank said the growth forecast for 2020 assumes the containment measures will gradually ease in the second half  of the year, and economic activities return in some sectors of the economy. Qian said the trajectory the multilateral agency is seeing is a deeper recession in the second quarter, coming from the 0.2 percent decline in the first quarter, since the enhanced community quarantine (ECQ) will cover most of the second quarter period.

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She added there will probably still be a recession in the third quarter, but the figure will be between the first and second quarter figures, as the economy gradually comes out of the ECQ and some sectors have restarted operations.

Lastly, there will more or less be a muted growth in the fourth quarter as the economy starts to return. “The outbreak appears to have largely subsided in China, Malaysia and Vietnam but has not yet peaked in some regional economies (Indonesia, the Philippines),” the World Bank said in the GEP report.

“Among the major economies, the largest downward revisions for 2020 are in Malaysia, the Philippines and Thailand (7.6, 8 and 7.7 percentage point below January forecast respectively). This reflects the significant impact of domestic lockdown measures, as well as the impact from reduced tourism, disruption of trade and manufacturing sector, the spillovers from financial markets and lower commodity prices in Malaysia,” it added.

Qian also said part of the reason for the sharp revision for the Philippines compared to other Asean countries is because the country is the first to impose strict community quarantine measures, which basically shut down the economy for almost two months.

“So that explains why the downward revision is larger. And also the Philippines also faced other external shocks. For example, with the Mindanao earthquake and the Taal volcano (eruption) that hasn’t happened for decades, and that has already had an impact on the economy earlier than the COVID-19,” she said.

The World Bank also said the expected contraction in 2020 and associated income loss among poor and vulnerable families is likely to result in poverty increase in the short term.
The multilateral agency said the imposed ECQ that began in mid-March has cut off income streams from seasonal wages and entrepreneurial activities.

“Workers relying on these income sources will likely see annual income losses of at least 16.7 percent,” the World Bank said in its PEU report.

“The growth of household incomes in recent years, particularly those from the lower income deciles, have been propelled by non-agricultural wages, mostly from low-end service jobs, which have been severely affected by COVID-19 and ECQ,” it added.

The World Bank further said poverty is projected to increase to 21.5 percent 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.

“As the threat of COVID-19 pandemic dissipates and the business activities gradually return to operation, economic growth recovery is expected to contribute to poverty reduction, as the poverty rate will decline to 20.4 percent and further to 19.1 percent by 2022,” it added.

Qian said another effect of the pandemic is having more returning overseas Filipino workers (OFWs), which is seen to affect remittances as well as increase the labor force in the country.

“Remittance is one of the main drivers of domestic consumption, so we can expect that domestic consumption growth going forward could be affected by this. And second, it basically increased the domestic labor force participation, from additional people coming back from abroad. And those also can lead to more difficult job search by people who were there,” she said.

Qian said while the government has been providing support to returning OFWs, more could be done if they plan to stay for a lot longer. “For example, some skill retooling and matching in terms of jobs, I think there’s more that could be done to let them return back to the domestic labor market (and have a) smooth transition,” Qian said.
The World Bank however said economic growth prospects and poverty figures are expected to improve in succeeding years driven by a rebound in consumption, a stronger push in public investment, supportive fiscal and monetary policies, and the recovery of global growth.

Economic growth is projected to return to above 6 percent in 2021 and 7 percent in 2022. “Increased economic activity surrounding national elections will also boost growth in 2022,” the multilateral bank agency said.
The World Bank also said the Philippines’ strong fundamentals, built over decades of structural reforms, has helped the economy to cope with the COVID-19 pandemic.

Meanwhile, the PEU report highlights the need for the country to improve its digital infrastructure to ensure reliable and affordable internet service.

Among the recommendations of the report are creating an enabling policy environment for a competitive broadband market and enhanced access to affordable internet services throughout the country.

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