The World Bank further slashed its growth projection for the Philippine economy this year after taking into account the continued contraction in the third quarter and losses incurred from recent typhoons.
In its Philippines Economic Update (PEU) report on Tuesday, the Washington-based financial institution said gross domestic product (GDP) was forecast to shrink by 8.1 percent this year, worse than its earlier outlook of a 6.9-percent contraction.
The latest outlook reverses last year’s 6.0-percent GDP growth, but falls outside the government’s recently revised projection of an -8.5 to -9.5-percent decline.
It is worse than the Asian Development Bank’s -7.3 percent and Moody’s Investors Service’s -7 percent, but better than Fitch Ratings’ -9.6 percent, S&P Global Ratings’ -9.5 percent, and the International Monetary Fund’s -8.3 percent.
The economy remained in recession after it shrank by 11.5 percent in the third quarter, 16.9 percent in the second and 0.7 percent in the first on the continued impact of the coronavirus disease 2019 (Covid-19) pandemic. This brought the contraction in GDP to 10 percent in the first nine months.
Typhoons “Rolly” (international name: Goni) “Siony” (Atsani) and “Ulysses” (Vamco), which hit the country in early November, had devastated Luzon and left dozens of billions of pesos in damage to agriculture and infrastructure, which the World Bank said contributed to the lowered outlook.
The pandemic also threatens to reverse the steady decline in poverty in recent years, resulting in an additional 2.7 million poor people this year, which the World Bank measures using the $3.2-a-day poverty line, not the country’s defined poverty line.
“Our baseline assumption assumes that the poverty number will fall to [the] 2018 level and slightly revert back to [the] 2019 [level] by 2022,” World Bank senior economist Rong Qian said in a briefing.
Recovery in next two years
The financial institution expects the economy to recover in the next two years, assuming that efforts to lower the coronavirus infection rate continues to improve.
Noting that policymakers were gradually allowing more industries to resume operations — thus reviving jobs and boosting incomes, and increasing private consumption — the World Bank said this would help the economy bounce back and grow by 5.9 percent in 2021 and 6 percent in 2022.
Qian said the World Bank’s latest forecast also included the assumption that a Covid-19 vaccine would not be rolled out soon.
The report also highlighted that the country’s recovery would be influenced by the government’s effectiveness in flattening the coronavirus curve.
The World Bank warned that new coronavirus cases might lead to the reimposition of stricter containment measures, which could dampen economic activities, lower consumption, and delay the implementation of public infrastructure projects.
New waves of coronavirus infections in advanced economies and the Philippines’ regional trade partners are also expected to negatively impact the country’s exports, foreign direct investments and remittances.
While addressing the pandemic, the country needs to sustain focus on the structural reform agenda, according to Qian.
“Speeding up reforms that improve the business environment, foster competition and strengthen resilience against natural disasters will support the economic recovery and boost productivity growth in the long term,” she said.
Ndiame Diop, World Bank country director for Brunei Darussalam, Malaysia, Thailand and the Philippines said the natural disasters that struck the country recently highlighted the importance of mainstreaming disaster-risk reduction and climate-change adaptation into policy and planning.
“While the Philippines is financially resilient, stronger coordination, execution and implementation will help further improve social and physical resilience to frequent shocks,” he added.
To strengthen the country’s resilience to natural disasters, the World Bank said the government should strengthen the integration of disaster risks in fiscal strategy; mainstream risk reduction in development planning and infrastructure investments, as well as ensure adequate budget allocation; address capacity constraints in the implementation and oversight of disaster risk management programs; increase transparency and efficiency of local government units’ postdisaster spending; and promote “green recovery” by investing in resilience and integrating resilience.