THE economy could grow by as much as three percent this year, or at worst, contract by 0.5 percent, as the country, just like many other economies, deals with the spread and impact of the coronavirus disease 2019 (COVID-19) pandemic, the World Bank’s latest report showed.
The multilateral agency’s regional economic update titled East Asia and the Pacific in the Time of COVID-19 published yesterday pointed out that in a rapidly changing environment, making precise growth projections is unusually difficult, thus the report presents both a “baseline” and a “lower case” scenario.
Under the baseline scenario, which indicates a severe slowdown followed by a strong recovery, the Philippine economy is seen to expand by three percent for 2020.
However, under the lower case scenario, where there is a deeper contraction followed by a sluggish recovery, the economy is expected to contract by 0.5 percent this year.
The report also projects a baseline growth forecast of 6.2 percent next year, and a lower case of 4.1 percent.
To recall, the World Bank had projected in January that the Philippine economy will grow by 6.1 percent this year, and 6.2 percent in the next two years. This was before the spread of COVID-19 in the country.
The National Economic and Development Authority also recently said the economy could contract by 0.6 percent or only grow by as much as 4.3 percent this year, if the adverse impact of the COVID-19 will be felt until June, and assuming that there are no mitigating measures in place.
“Growth outlook for 2020 is gloomy given the global impact of the COVID-19 pandemic and the strict community quarantine that has taken place in Luzon since March 17, 2020,” the World Bank said.
“These are expected to slow down the progress on poverty reduction, and have prompted the government to announce a stimulus package to boost the economy from the economic impact of the outbreak,” it added.
The World Bank said domestic consumption is expected to slow down sharply in the first half of 2020, while the implementation of the public infrastructure program is expected to be delayed and private sector investment to be postponed.
“Export of goods and services are also expected to be negatively impacted with the imposition of travel restrictions globally and the production disruption experienced in China in which the Philippine electronic sector has a strong linkage,” the report said.
“Furthermore, travel bans and the COVID-19 outbreaks in overseas Filipino workers-destination countries are likely to affect the inflow of remittances in 2020, further damping domestic consumption growth,” it added.
Nevertheless, the report said economic growth is expected to accelerate rapidly in the next two years as global conditions improve, and with more robust domestic activity bolstered by the public investment momentum and a boost from 2022 election-related spending.
Meanwhile, the World Bank said ongoing increasing trend in real wages, which is expected to have a positive impact on household incomes, particularly those from the lower income groups, might be hampered by the impact of COVID-19.
“If the positive trends, including rising real wages, expanding non-agricultural wage employment, and stabilizing inflation, continue, the declining trend in poverty is likely to continue,” the report said.
“Measured by the lower middle-income class poverty line ($3.20 a day), the poverty headcount in the Philippines is projected to continue to decline from 21.9 in 2018 to 20.5 percent in 2020 and 18.3 percent in 2022,” it added.
The World Bank said risks to the baseline forecast, which assumes that the Philippines will slowly return to normal business operations by the third quarter, include 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,” the report said.
“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. Such a scenario might take an even more significant toll on those who work in the informal sector, who are likely to suffer a more significant welfare loss,” it added.
In addition to the immediate public health response to prevent, detect, and contain local transmission, the World Bank said short-term fiscal and monetary policy stimuli may be needed to lessen the adverse economic impact of COVID-19 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,” the multilateral institution said.
Slow growth in region
The World Bank also said the coronavirus pandemic is expected to sharply slow growth in developing economies in East Asia and the Pacific as well as China.
The bank said precise growth forecasts were difficult, given the rapidly changing situation, but its baseline now called for growth in developing economies in the region to slow to 2.1 percent in 2020, and to -0.5 percent in a lower-case scenario, compared to estimated growth of 5.8 percent in 2019.
In China, where the coronavirus outbreak originated in late December, growth was projected to slow to 2.3 percent in the baseline scenario, or as low as 0.1 percent in the lower-case scenario, compared to growth of 6.1 percent in 2019.
The region faced an unusual combination of “disruptive and mutually reinforcing events,” the report said. “Significant economic pain seems unavoidable in all countries.”
Countries in the region should invest in healthcare capacity and take targeted fiscal measures, such as providing subsidies for sick pay and healthcare, to mitigate some of the immediate impacts of the pandemic, the World Bank said.
“Containment of the pandemic would allow for a sustained recovery in the region, although risks to the outlook from financial market stress would remain high,” it said.
The financial shock of the pandemic was also expected to have a serious impact on poverty, defined as income of $5.50 a day, the bank said. The baseline scenario called for nearly 24 million fewer people to escape poverty across the region in 2020 due to the pandemic. If the economic situation deteriorated even further, poverty could increase by about 11 million people.
Prior projections estimated that nearly 35 million people would escape poverty in the region in 2020, including over 25 million in China alone, the bank said.
In addition to targeted fiscal measures, countries should look to deeper international cooperation and new cross-border public-private partnerships to ramp up the production and supply of key medical supplies and services, and ensure financial stability in the aftermath of the crisis, it said.
Countries should also ease credit to help households smooth their consumption and help firms survive the immediate shock of the outbreak.
“The good news is that the region has strengths it can tap, but countries will have to act fast and at a scale not previously imagined,” said Victoria Kwakwa, vice president for East Asia and the Pacific at the World Bank. — (With Reuters)
