The World Bank on Tuesday reduced the 2021 growth forecast for the Philippines to 4.3 percent from 5.5 percent, as the recovery of East Asia and Pacific region was undermined by the spread of the COVID-19 Delta variant.
It also revised downward the country’s 2022 growth forecast to 5.8 percent from the previous estimate of 6.3 percent and predicted that expansion would reach 5.5 percent in 2023. The latest figures are contained in the World Bank’s East Asia and Pacific Fall 2021 Economic Update.
The bank said the Delta variant prolonged the distress for companies and households in the region, likely slowing economic growth and increasing inequality.
It said that while China, Indonesia and Vietnam already surpassed pre-pandemic levels of output, Cambodia, Malaysia and Mongolia would only do so in 2022, and the Philippines, Thailand and many Pacific Islands would remain below pre-pandemic levels of output even in 2023.
“Constraints on vaccination differ for countries in the region. Availability held back vaccination rates in larger countries like Indonesia, the Philippines and Vietnam. Smaller, poorer countries, such as some of the Pacific islands, benefited from vaccine donations, but some are constrained by limited distribution infrastructure. In several countries, as vaccination levels increase, hesitancy is likely to be a constraint,” the World Bank said.
It said the COVID-19 pandemic threatens to create a combination of slow growth and increasing inequality for the first time this century in the region. “The result could be deprivation to an extent that the region has not seen in the last two decades. In Indonesia and the Philippines, as many as 8 million more people would remain trapped in poverty in 2023 if recovery is not accompanied by inequality reducing policies,” it said.
The report said that in Indonesia, Mongolia and the Philippines, firms lost on average at least 40 percent of their typical monthly sales and cut jobs. “The failure of otherwise viable firms is leading to the loss of valuable intangible assets, such as supplier or customer relationships and know-how. Surviving firms are deferring productive investments. Unemployment can erode human capital and hurt future earnings. These negative effects on growth are likely to be stronger than any benefits of creative destruction induced by the crisis,” it said.
The bank said more than 90 percent of those who would remain poor were expected to come from Indonesia, the Philippines and Myanmar.
It said that economic activity began to slow down in the second quarter of 2021, and growth forecasts were downgraded for most countries in the region. It said that while China’s economy was projected to expand by 8.5 percent, the rest of the region was forecast to grow at 2.5 percent, nearly 2 percentage points less than forecast in April 2021.
Employment rates and labor force participation dropped, and as many as 24 million people in the region would not be able to escape poverty in 2021, it said.
“The economic recovery of developing East Asia and Pacific faces a reversal of fortune,” said World Bank vice president for East Asia and Pacific Manuela Ferro.
“Whereas in 2020 the region contained COVID-19 while other regions of the world struggled, the rise in COVID-19 cases in 2021 has decreased growth prospects for 2021. However, the region has emerged stronger from crises before and with the right policies could do so again,” he said.
The damage done by the resurgence and persistence of COVID-19 is likely to hurt growth and increase inequality over the longer-term, the report said. The failure of otherwise viable firms is leading to the loss of valuable intangible assets, while surviving companies are deferring productive investments. Smaller companies were hit the hardest, it said.
Households also suffered, especially poorer ones, which were more likely to lose income, suffer greater food insecurity, have children not engaged in learning and make distress sales of scarce assets. “The resulting increase in stunting, erosion of human capital, and loss of productive assets will hurt the future earnings of these households. Increased inequality between firms could also increase inequality between workers,” the report said.
World Bank East Asia and Pacific chief economist Aaditya Mattoo said accelerated vaccination and testing to control COVID-19 infections could revive economic activity in struggling countries as early as the first half of 2022, and double their growth rate next year.
“But in the longer term, only deeper reforms can prevent slower growth and increasing inequality, an impoverishing combination the region has not seen this century,” Mattoo said.