The World Bank said Tuesday it expects the Philippine economy to contract 1.9 percent this year, a reversal from the expansion of 6 percent a year ago because of the debilitating impact of the coronavirus pandemic.
The latest forecast was contained in the multilateral lender’s June 2020 report titled “Philippines Economic Update.” It was a substantial revision from the 6.1-percent growth forecast made in January.
The bank said the eruption of Taal Volcano and the global outbreak of COVID-19, including the strict containment measures against the pandemic, led to severe disruptions in manufacturing, agriculture, tourism, construction and trade.
The bank said with millions of households and overseas Filipinos affected, the cumulative impact of these events on the economy were broad-based, steep and deep, halting investment activity and leading to the lowest consumption growth in three decades.
Private consumption growth fell to 0.2 percent in the first quarter of 2020 from 6.2 percent last year. The hotel and restaurant industry suffered the most, contracting by 15.4 percent.
The bank said the economic contraction in 2020 would likely cause an increase in poverty. Containment measures cut off income streams from seasonal wage earners and those engaged in entrepreneurial activities in non-agricultural activities and low-end service jobs, which were the drivers of poverty reduction in recent years.
“During these difficult times, strengthening the capacity of the healthcare system to control the outbreak while protecting poor and vulnerable households remains an urgent task for the country,” said Achim Fock, World Bank acting country director for Brunei, Malaysia, the Philippines and Thailand.
“Similarly, financial support to affected firms, especially small and medium enterprises, to prevent job losses and bankruptcy, can help ensure that the recent shocks do not cause permanent damage to the country’s productive capacity and human capital,” Fock said.
Rong Qian, World Bank senior economist, said the country’s digital infrastructure would play a critical role in the economic recovery.
“Measures that restrict mobility, regulate physical contact, and limit business activity have forced more businesses and families to use the internet for transactions,” said Qian.
“This change in consumer behavior and firm operations is expected to continue even after quarantines end. To take full advantage of this situation and help the economy in recovering from the losses it has suffered due to the lockdown, the country must ramp up its efforts to accelerate the digitalization of the economy,” Qian said.
Among the major economies in the Asian region, the largest downward revisions for 2020 are in Malaysia, the Philippines and Thailand (7.6, 8.0 and 7.7 percentage points below January forecast, respectively), the bank said.
The bank said the outbreak appeared to have largely subsided in China, Malaysia and Vietnam but had not yet peaked in some regional economies such as Indonesia and the Philippines.
It cited the move of regional economies that have cut monetary policy rates, provided liquidity and credit facilities and embarked on various asset purchase programs, like Indonesia, Malaysia, the Philippines and Thailand.
The World Bank said that for 2021, the Philippine economy was expected to rebound strongly and grow by 6.2 percent as the pandemic subsides and global trade improves.
It said the COVID-19 pandemic took a severe human and economic toll on East Asia and Pacific. Regional growth is projected to slow sharply in 2020, to 0.5 percent—the lowest rate since 1967—reflecting impact of pandemic-related lockdowns, tighter financing conditions, and a deep contraction in exports.
It said sizable policy support would prevent a more severe deceleration. Although subject to significant uncertainty, regional growth is expected to rebound to 6.6 percent in 2021 as the pandemic subsides, global import demand recovers and capital flows to the region normalize.
“However, the balance of risks to the outlook is firmly tilted to the downside. Key risks include a longer-than-expected duration of the pandemic, a prolonged period of heightened financial stress, and a sharper- and longer-than-expected contraction in global trade compounded by re-escalating trade tensions,” it said.
The report further showed that Indonesia will likely have a flat growth this year; Malaysia, -3.1 percent; Thailand, -5 percent, and Vietnam 2.8 percent.
Globally, World Bank said the pandemic delivered an enormous global shock, leading to steep recessions in many countries. The baseline forecast envisions a 5.2-percent contraction in global GDP in 2020—the deepest global recession in decades.