By Beatrice M. Laforga, December 9, 2020; Business World
The World Bank (WB) is expecting the Philippine economy to miss the government’s growth targets for the next two years, amid a slow and fragile recovery from the coronavirus pandemic.
In its latest Philippines Economic Update released Tuesday, the multilateral lender once again lowered its gross domestic product (GDP) forecast for the Philippines this year to an 8.1% contraction, from the 6.9% slump penciled in last October.
To compare, the Philippine government’s economic team expects GDP to shrink by 8.5-9.5% this year.
The World Bank said it cut growth projections for the Philippine economy after GDP fell by a faster-than- expected 11.5% in the third quarter, and the damage caused by strong typhoons in November. Damage to infrastructure and agriculture caused by the recent string of typhoons reached P24 billion or 0.1% of GDP, according to preliminary estimates.
The Washington-based multilateral lender also noted the recession could push 2.7 million more Filipinos into poverty by year’s end.
The World Bank noted the economy’s recovery “remains fragile, uneven, and incomplete,” as GDP shrank by 10% in the first three quarters of 2020 — the deepest contraction since the debt crisis in 1985.
For the next two years, the World Bank expects the economy to grow by 5.9% in 2021 (slightly higher than the previous forecast of 5.3%) and by 6% in 2022.
“These projections hinge on China’s early recovery, among the Philippines’ main export destinations, alongside the expected rebound in the global economy in 2021,” it said.
However, these medium-term projections are well below the revised 6.5-7.5% GDP target for 2021 and 8-10% goal for 2022 set by the Development Budget Coordination Committee (DBCC).
“On the DBCC assumptions, we do agree in the path of the recovery that the contraction will be deep in 2020 and the recovery is smooth, not a fast rebound but a gradual recovery given that containment measures will still be on for some months next year,” said Rong Qian, a senior economist at the World Bank, during a press conference on Tuesday.
The economy is seen to post a “moderate growth rebound” next year on base effects, a pickup in household consumption, and new jobs as more businesses are allowed to reopen.
“As the government ramps up its infrastructure spending in the fourth quarter of 2020 and even more in 2021, the construction sector will rebound contributing to job creation as well. Finally, pre-election activities in the run-up to the national election in 2022 will give an additional boost to demand as early as in the second half of 2021,” the World Bank said.
After an estimated 28.7% contraction this year, capital formation is expected to show a modest recovery in the next two years, the World Bank said.
“The expansion of private investments is likely to be dampened by weakness in the balance sheets of some large corporations that have been severely impacted by the pandemic. Moreover, the fall in foreign direct investment (10.9% contraction, year on year, in the first seven months of 2020), alongside the decline in bank lending for production activities (average of 1%, month on month, contraction between April and August), preclude full access to externally sourced funds to finance investment plans,” it said.
RISKS TO OUTLOOK
However, a potential resurgence of coronavirus disease 2019 (COVID-19) infections is the “most significant downside risk” to the growth outlook, the World Bank said.
“Should a second wave of infections materialize and remain unchecked, a reversal to strict lockdown measures would lead to the closure of more businesses and a spike in unemployment, lowering business and consumer confidence and investment levels, which could push the economy into a deeper recession in 2020 and lead to a more protracted recovery in the medium term,” it said.
While an early and successful rollout of the COVID-19 vaccine in the country will be an upside risk to the baseline growth projections, the World Bank does not expect the vaccine to be widely available very soon.
“The vaccine rollout will build confidence not only in the Philippines but also globally, which will also have an impact on the country’s path of recovery through external channels,” Ms. Qian said.
Natural disasters such as typhoons, earthquakes and floods also pose downside risks to the growth outlook.
“The extent of the impact of these natural events on the pace of economic recovery is highly uncertain as government post-disaster response is hampered by its effort to manage the pandemic,” the World Bank said.
Poverty in the Philippines is likely to rise in the near term due to the pandemic’s impact on household income and jobs.
“The COVID-19 pandemic threatens to partly reverse the gains made in poverty reduction and shared prosperity in recent years,” the World Bank said.
The country’s poverty rate, based on the lower-middle income threshold of the number of population living below $3.2 a day, is expected to increase to 22.6% this year from 20.5% last year. This is equivalent to 2.7 million more Filipinos slipping back into poverty, the World Bank said.
The poverty rate is seen to decline through 2022, as the impact of the pandemic subsides and economic activity returns to normal.
“To build a resilient recovery, the government needs to protect the poor, improve preparedness and post-disaster response effectiveness while continuing the effort to flatten the infection curve in the short term,” the World Bank said.
The impact of the recent natural disasters highlighted the importance of adopting better disaster risk reduction efforts and policies responsive to climate change, according to Ndiame Diop, World Bank’s country director for Brunei, Malaysia, Thailand and the Philippines.
“While the Philippines is financially resilient, stronger coordination, execution and implementation will help further improve social and physical resilience to frequent shocks,” he said.
The World Bank estimates the country suffers an average of $3.5 billion (P168.28 billion) in asset losses or around 1.1% of GDP each year due to typhoons and earthquakes.