PHL slowdown this year, but recovery likely in 2021 — ADB
THE Philippine economy is seen to significantly slow down this year, as the coronavirus (COVID-19) pandemic dampens domestic consumption and growth in trade and tourism, the Asian Development Bank (ADB) said on Friday.
In its Asian Development Outlook 2020 released on Friday, the multilateral lender slashed its 2020 gross domestic product (GDP) growth projection for the Philippines to two percent from the 6.2% penciled in September. This would be slower than the 5.9% recorded in 2019 and way below than the official target of 6.5-7.5%.
If realized, a two percent expansion this year will be the Philippine economy’s slowest in 11 years or since 2009’s growth of 1.1%.
However, ADB’s growth outlook for the Philippines is still faster than the one percent projected average growth for Southeast Asia region, but a tad slower than the 2.2% growth forecast for Asia.
The Philippines’ projected growth will lag behind Vietnam (4.8%), Myanmar (4.2%), Laos (3.5%), Indonesia (2.5%), and Cambodia (2.3%), but faster than Brunei (2%), Malaysia (0.5%), Singapore (0.2%), Timor (-2%) and Thailand (-4.8%)
The ADB’s projections assume that the outbreak will be contained by June.
“GDP growth in the Philippines will decelerate to 2.0% this year, even as the impact of COVID-19 and the global slowdown are partly offset by government expansionary policies that will help lift growth to 6.5% in 2021,” the report read.
The economic growth slowdown is attributed to the slower domestic demand as the government implemented a month-long enhanced community quarantine of Luzon from mid-March to mid-April, alongside a drastic drop in tourism, trade and remittances.
“This unprecedented and extraordinary public health emergency brought about by the COVID-19 pandemic will substantially slow down economic growth this year, with most of the contraction in the economy occurring in the second quarter,” ADB Country Director for the Philippines Kelly Bird was quoted as saying.
However, the ADB said “expansionary monetary and fiscal policies remain supportive” after the Bangko Sentral ng Pilipinas slashed policy interest rates by 75 basis points (bps) to push the overnight reverse repurchase rate to 3.25% and reduced some banks’ reserve requirement by 200 bps.
The economy also saw support from the fiscal side as funding packages were released for the fight against COVID-19 pandemic. But with higher government spending, ADB said the Philippines’ budget deficit cap equivalent to 3.2% of GDP will be “significantly exceeded” this year.
ADB Chief Economist Yasuyuki Sawada said in general, government debt “is set to soar” as many countries spend massively to contain the pandemic and keep their economies afloat.
“The Philippine government has been cutting its debt ratio to 41-42% last year, so the Philippine government has indeed sufficient fiscal space to respond and many Southeast Asian countries that have public finance that are in good shape,” Mr. Sawada said during the launch of the report streamed on the ADB website.
RECOVERY SEEN IN 2021 The Philippine economy is expected to recover next year, to be driven by higher public investment, particularly on infrastructure projects, and a rebound in private consumption, the ADB said.
It also noted expansionary fiscal and monetary policies will also offset slower domestic demand and disruptions in tourism, trade and manufacturing.
ADB also projects the inflation rate to average at 2.2% this year and pick up by 2.4% next year. The current account deficit is expected to settle at 0.3% of GDP, before widening to 1.4% next year.
“The main downside risk to GDP growth in 2020 comes from COVID-19 and is therefore highly unpredictable. The impact on the economy will be larger than currently assumed if the global outbreak is prolonged beyond the first half, or if there is a sustained local transmission in the Philippines,” it added.
Mr. Sawada said the economic fallout will be higher if the COVID-19 outbreak is not contained by September.
BIGGER ECONOMIC IMPACT LOOMS In its updated “COVID-19 economic impact assessment” as of March 28, ADB said the Philippine economy stands to lose as much as $19.035 billion in GDP losses and up to 2.5 million job losses if there will be a “significant outbreak” this year.
Under the assumption of a “significant outbreak” in the country, ADB said there will be an additional impact of between $7.709 billion to $19.035 billion in GDP losses this year. This will mean a loss of 1.042 million to 2.571 million jobs.
If the containment period lasts for six months and there are bigger demand shocks, the Philippines may lose as much as $5.358 billion or 1.62% of its GDP, resulting in 739,000 job losses.
The ADB said the longer containment scenario assumes that outbound tourism from China drops by 55% for six months, travel bans continue to be imposed, inbound tourism is still affected, growth of domestic consumption falls by five percentage points and growth in local investments declines by 6.25%.
However, if the COVID-19 outbreak will only last for three months with small demand shocks, Philippine GDP losses may only hit $2.616 billion accounting for 0.79% of GDP, with job losses of 360,000.
These computations are based on the country’s 2018 GDP of $330.91 billion.
Earlier, the ADB has already provided two grants worth $8 million to assist the Philippine government’s efforts to ease the effect of COVID-19 on its citizens.
“We are now in advanced stages of preparing a larger and comprehensive assistance to help alleviate the impacts of the pandemic on communities’ well- being and support fiscal stimulus,” Mr. Bird said.