The World Bank has slashed its growth projection for the Philippines to 4.7 percent this year, due to the larger-than-expected economic contraction in the first quarter, the recent reimposition of stricter quarantine measures in response to the spike in coronavirus disease 2019 (COVID-19) cases, and the lingering challenges from high inflation and losses in household incomes.
The World Bank’s growth forecast for the year, published in the April 2021 World Bank East Asia and the Pacific Economic Update released yesterday, has been revised from its outlook in March of 5.5 percent.
The World Bank’s latest forecast is below government’s emerging gross domestic product (GDP) growth projection of six to seven percent.
The Washington-based agency sees growth accelerating to 5.9 percent next year — below government’s projection of 7 to 9 percent — and six percent in 2023 which is the lower end of the government’s 6 to 7 percent estimate.
“…in the first quarter, the growth was weaker than expected. In the second quarter…the imposition of the (stricter) quarantine measures, alongside the increase in COVID-19 cases… affected domestic activity, considering much of Metro Manila and nearby provinces are in stricter measures for more than one and a half months, so that also impacted our projections,” Kevin Chua, World Bank senior economist, said in a virtual briefing yesterday.
“Starting the second half of 2021 we will see faster vaccination rollout, and that will impact the confidence level, and we see that domestic demand will likely ramp up in the second half of the year, and towards 2022, it can accelerate and recover more,” he added.
Chua also cited the government’s actions which are supportive of economic recovery, such as the increased spending for infrastructure and capital outlays in the first quarter.
“The global economic rebound especially among the country’s trading partners will boost exports and increase remittances, strengthening recovery in the Philippines,” Ndiame Diop, World Bank country director for Brunei, Malaysia, Philippines and Thailand, for his part, said.
The World Bank report said poverty is estimated to increase by around 1.4 percentage points between 2018 and 2020, which represents around two million more poor Filipinos in 2020 than in 2018.
“The reimposition of stricter community quarantines risks raising poverty further. However, if wage and non-farm employment increase with the anticipated GDP growth and inflation is stable, the poverty rate will likely decline back to its 2018 level by 2021 and maintain a downward trend through 2022,” the report said.
The World Bank said headline inflation is expected to reach an average of four percent in 2021, the upper bound of the two to four percent inflation target range, before declining in succeeding years.
“The rise in inflation this year is projected to be driven by supply-side constraints on key food commodities and the rise in global oil prices. The global average crude oil price is expected to increase from $41.3/bbl in 2020 to $56/bbl in 2021, as trade and industrial activity recover,” the report said.
“As the government addresses domestic supply constraints and oil prices stabilize starting next year, inflation is expected to retreat to within the target range. The central bank is expected to keep its accommodative monetary policy stance to support the weak economy,” it added.
