WB downgrades Philippine economic outlook anew, cites unsuccessful efforts vs. COVID-19

The Philippine economy is now likely to register a deeper contraction than earlier expected due to its failure to control the COVID-19 pandemic, the World Bank (WB) said Tuesday.

In its East Asia and Pacific Economic Report launched Tuesday, the WB said it now expects the local economy to contract by 6.9% this year, with the worst-case scenario at -9.9%.

This is a deeper contraction than the 1.9% outlook in June

"Indonesia and the Philippines face uncertain prospects. The region’s two most populous countries after China have not so far succeeded in controlling the pandemic," the report read.

"Indonesia has not imposed strict lockdowns and seems to be relying on softer measures, while the Philippines has gone on a cycle of repeated strict lockdowns and reopenings," it added.

The WB noted, however, that the Philippines is much more exposed to the rest of the world through trade.

As of Monday, September 28, the Philippines has recorded a total of 307,288 confirmed cases of COVID-19. This includes 252,665 recoveries, and 5,381 deaths.

Meanwhile, the National Economic and Development Authority (NEDA) on Tuesday said the Philippine economy is still seen to post a year-on-year contraction in the third quarter of the year.

“We are hoping that it will be better than the second quarter but we don’t think it will be positive year-on-year,” NEDA Undersecretary Rosemarie Edillon said in a virtual briefing.

The country’s gross domestic product (GDP) contracted by 16.5% in the second quarter, its worst on record in nearly three decades. 

The two straight quarters of negative GDP brought the economy to a recession for the first time since 1991.

Economic managers earlier said the worst is over in the second quarter since the economy was allowed to reopen after months of strict lockdown.

“Quarter-on-quarter it will be definitely positive looking at the results of the July LFS (Labor Force Survey), pero kung year-on-year negative pa rin siya,” Edillon said.

Poverty

The same WB report noted that poverty in the region is projected to increase for the first time in 20 years, with as many as 38 million people expected to remain in, or be pushed back into poverty, as a result of the pandemic.

Based on the upper-middle income poverty line of $5.50 a day, the World Bank said this could be equivalent to 2 million Filipinos this year.

"COVID-19 is not only hitting the poor the hardest, it is creating ‘new poor.’ The region is confronted with an unprecedented set of challenges, and governments are facing tough choices," said Victoria Kwakwa, vice president for East Asia and the Pacific at the World Bank.

"But there are smart policy options available that can soften these tradeoffs - such as investing in testing and tracing capacity and durably expanding social protection to cover the poor and the informal sector," she added.

Economic growth

For the next two years, the World Bank said Philippine economic growth is expected to remain below 6% — 5.3% in 2021, and 5.6% in 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 Rong Qian, WB senior economist.

She noted, however, that the base forecasts tend to be high because of a negative base, while the scheduled elections in 2022 could boost activities in the latter half of 2021 through 2022.

"Accelerating structural reforms to improve the business environment, foster competition, and boost productivity growth can enhance inclusive growth," said Qian.

"For instance, reforms in still-protected sectors like finance, transport, communications will equip people, government, and the private sector to take advantage of emerging digital opportunities," she added.

Moving forward, the World Bank said recovering from the pandemic requires effective public health management and social protection measures.

"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," said Ndiame Diop, director for Brunei, Malaysia, Philippines, and Thailand.

"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 definite recovery," he added. — RSJ/KG, GMA News