By Ian Nicolas Cigaral, March 31, 2020; The Philippine Star
Manila, Philippines — Consistent with government projections, the World Bank becomes the latest institution to sharply lower its projections for the Philippine economy, a picture also painted across East Asia and the Pacific battling the effects of the global coronavirus disease-2019 (COVID-19) pandemic.
In its latest report detailing the impact of COVID-19 in the region, the multilateral lender forecasts the local economy to either grow 3% under a “baseline scenario” or contract by as much as 0.6% under a “lower case scenario.” The economy grew 5.9% in 2019.
The former assumes a “severe slowdown followed by a strong recovery” post-pandemic next year, while the latter projects the health crisis would worsens before a “sluggish” rebound is recorded.
The latest downward revisions on World Bank assumptions follow that of other institutions like credit raters Moody’s Investors Service, S&P Global Ratings and even investment banks which have lowered their regional forecasts one by one as the global pandemic, which has halted business and commerce, show no signs of getting under control.
Interestingly, the lender’s bleaker outlook even fall squarely with that of the National Economic and Development Authority, which sees a 4.3% uptick under a baseline scenario and 0.6% downturn at the worst when government interventions are not deployed as a response to the outbreak.
That said, World Bank’s 2021 forecasts still appear rosier. Under the baseline scenario, the Philippines can grow as much as 6.2% next year, while lower case projection was pegged at a decent 4.1% uptick.
“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,” it said.
China connection a weakness
Similar with the rest of East Asia, the Philippines’ high source of vulnerability this year stems from its elevated exposure to China mainly through trade. In exports alone, the lender said “about 50% of total manufacturing exports” from the Philippines go to China, similar with the exposure of Indonesia.
Rising Chinese tourists in the country, and the subsequent drop as a result of the contagion fears, would also have a devastating impact, the World Bank said. “The biggest GDP losses are reported in the regions most integrated through trade and/or where tourism plays a big role in the economy,” it said.
Remittances can also suffer a decline, an event that if realized, would deal a great blow on household earnings. “Income and employment” shocks are also likely due to work stoppage, which in turn can worsen poverty.
Despite the dismal forecasts, the Philippines is still expected to grow faster the average for the entire developing East Asia, which under baseline scenarios, is seen to slow to 2.1% this year from 5.8% last year. The region can contract 0.5% under a worst case scenario.
“Early indications of the economic costs and the magnitude of estimated impacts demonstrate the need for a coordinated international response to the crisis,” the World Bank said.
“Fortunately, global institutions, are beginning to catalyze and coordinate global efforts, as well as to provide technical and financial support (to) countries coping with health and economic consequences of the outbreak,” it said.