The Asian Development Bank said Tuesday it expects the Philippine economy to contract by 7.3 percent this year, deeper than its previous estimate of a 3.8-percent decline, because of the impact of the COVID-19 pandemic.
It said, however, that the economy would likely rebound by 6.5 percent in 2021, on expectation that the health crisis would be over by that time.
“The economy is expected to rebound in 2021 as the outbreak is contained, the economy is further opened, and more government stimulus measures are implemented. Downside risks next year include a slower than expected global recovery that could weigh heavily on trade, investment, and overseas Filipino worker remittances,” the bank said in the Asian Development Outlook 2020 Update.
“We believe the worst is now over and that the contraction in GDP bottomed out in May or June this year. The package of measures the government rolled out such as income support to families, relief for small businesses, and support to agriculture in the second quarter all helped the economy to bottom out. We expect the recovery to be slow and fragile for the rest of this year, and growth to accelerate in 2021 on the back of additional fiscal support and an accommodative monetary policy stance,” ADB country director for the Philippines Kelly Bird said in a statement.
ADB said it fully supported the government’s COVID-19 response, delivering a combination of loans and grants to help finance measures aimed at lessening the pandemic’s impact on lives and livelihoods.
It provided about $2.3 billion in loans and grants to support the government’s urgent COVID-19 response, including social protection and livelihood support to help mitigate the impacts on livelihoods and employment and assistance to further scale up the government’s health response against the pandemic.
Following a contraction of 9 percent in the first half, a slow economic recovery is expected to start in the second half, as the government’s fiscal response gains traction and household consumption slowly picks up on a jobs rebound, the bank said.
Following the relaxation of community quarantines in June, the employment situation in July improved markedly from April. The services sector was the main job creator with 3.4 million jobs added between April and July, followed by the agricultural and industrial sectors, with 2.1 million and 2 million, respectively. Consequently, the unemployment rate fell from 17.7 percent in April to 10.0 percent in July.
The government is preparing an additional fiscal support package to be implemented in September which is expected to include cash subsidies to poor households; support for displaced workers and critically affected sectors such as agriculture, tourism, and transportation; and relief to the health care system, among other measures. Such measures will have high multiplier effects and keep the economy on track to recovery next year.
The ADB also revised the Philippines’ inflation forecasts to 2.4 percent in 2020 and 2.6 percent in 2021, compared with the April projections of 2.2 percent and 2.4 percent, respectively, as global oil prices stabilize.
The forecasts are within the Bangko Sentral ng Pilipinas’ target range of 2 percent to 4 percent, with monetary policy likely to continue to help the economy’s rebound from the pandemic.