The World Bank said Tuesday it expects the Philippine economy to contract 6.9 percent this year on the deeper impact of the COVID-19 pandemic, but said a recovery is possible in the next two years if the government successfully manages the health crisis.
The forecast is contained in the bank’s October 2020 Economic Update for East Asia and the Pacific. The projected 6.9-percent decline is worse than the -1.9 percent gross domestic product estimate announced by the bank in June.
It said the Philippine economy, however, might rebound by 5.3 percent in 2021 and 5.6 percent in 2022.
NdiameÌ Diop, World Bank country director for Brunei, Malaysia, the Philippines and Thailand, said in a briefing assistance to poor and vulnerable families and micro and small enterprises would help cushion the impact of the pandemic and hasten recovery in the country.
“The government must act now to reduce the impact… and to strengthen the recovery,” Diop said.
Economic growth averaged 6.6 percent from 2015 to 2019, which the bank said was a result of prudent macro-fiscal management, significant investments in infrastructure and human capital and favorable external conditions. The robust growth in household incomes reduced the national poverty rate from 23.5 percent in 2015 to 16.7 percent in 2018.
“The COVID-19 shock is now abruptly pushing the economy into recession and threatening these economic and social gains. The pandemic has triggered declines in remittances sent by Filipino overseas workers and job losses caused by strict containment measures,” the World Bank said.
It said recovering from the pandemic would require effective public health management and social protection measures and resuming the government’s strong emphasis on human capital investments and infrastructure that characterized the Philippines’ successful growth before COVID.
Diop said that in the short term, “every peso put directly in the hands of poor and vulnerable families through social assistance translates into demand for basic goods and services in local communities, which in turn supports micro and small enterprises and the government’s recovery efforts.”
“At the same time, one cannot overemphasize the importance of improvements in public health management including testing, tracing, isolating, and treatment to effectively control the spread of COVID-19 and secure a definitive recovery,” Diop said.
The economy shrank by 9 percent in the first half, compared to the 5.6-percent growth in the same period last year. The contraction, the largest since 1985, was driven by the implementation of strict quarantine measures including restrictions on mobility, work-from-home arrangements and closures of workplaces that choked economic activities.
Exports and imports also weakened as international trade slumped, upended by massive disruptions in global value chains.
World Bank senior economist Rong Qian said the projection of a 5.3-percent and 5.6-percent growth in 2021 and 2022, respectively, took into account the possibility of the government successfully managing the COVID-19 transmission – or that no major spikes in cases would lead to further lockdowns.
Qian said in this scenario, businesses and households would regain confidence and the government would continue the rollout of infrastructure program.
Qian said the base effects, or the numbers tending to be high because it is coming from a negative base, would prop up growth in 2021 while the scheduled national elections in May 2022 would boost activities in the latter half of 2021 through 2022.
“In the medium term, sustaining the public infrastructure spending agenda will support economic recovery while addressing long-standing infrastructure gaps in the country,” said Qian.