WB sees 6.9% GDP plunge

The World Bank on Tuesday downgraded anew its 2020 Philippine economic growth forecast to -6.9 percent from -1.9 percent, which it said would slow down the country’s progress in poverty reduction over the past years.

In its reported titled “From Containment to Recovery — the World Bank’s October 2020 Economic Update for East Asia and the Pacific,” the bank said the economy is projected to recover and grow by 5.3 percent in 2021 and 5.6 percent in 2022.

The World Bank said the -6.9-percent baseline forecast refers to a scenario of severe growth slowdown followed by a strong recovery. For the lower case, which refers to a scenario of a deeper contraction followed by a sluggish recovery, Philippine economic growth is projected to contract by 9.9 percent this year and grow by 2.9 percent in 2021.

The report cited that while growth averaged 6.6 percent from 2015 to 2019 and poverty rate declined to 16.7 percent in 2018 from 23.5 percent in 2015, the “Covid-19 (coronavirus disease 2019) shock is now abruptly pushing the economy into recession and threatening these economic and social gains.”

The World Bank said that among the countries in the region, the Philippines and Indonesia are facing uncertain prospects, noting the Philippines in particular “face the prospect of an uneven and volatile economic recovery.”

“The return to the pre-Covid level for the Philippines is around 2021 based on our projection. The pace is slower in the Philippines because [it] is much more connected to the world than Indonesia, which is a very domestic-driven economy,” said World Bank Senior Economist Rong Qian in a briefing.

Qian said the Philippines also relies on tourism and service and trade exports, so it is more exposed to global demand than Indonesia.

“Also for the last six months, the Philippines has been in more strict lockdown than Indonesia,” she said.

Slow down in poverty reduction

The World Bank’s report noted the projected contraction could slow down the country’s progress in poverty reduction in recent years.

Qian said that using the “World Bank’s lower middle income poverty measure which is $3.2 per day,” the country’s poverty rate for 2019 will be around 20.5 percent and 22.4 percent this year.

She noted that poverty reduction will depend on the country’s economic recovery.

“On the jumpstart and speed of recovery, we need to first tackle the source of the pandemic which is the health crisis which means more tracing, testing, isolating to manage the pandemic is the first priority. And then and to be very flexible in the policy response to adopt as the economy reopens to see where there needs more intervention, which sector of the economy and population needs more help is something that the government needs to be very closely observing to make sure that the recovery is inclusive,” Qian said.

She likewise cited the importance of balancing the pros and cons of the government’s stimulus package.

“For the Philippines, we also need to balance the short-term benefit versus the long-term impact. Having a large package now means we will be having a higher debt in the coming years, which will mean that more resources will be used to pay the debt but at the same time we also need to ensure that the poor and vulnerable are protected,” she said.

“The government has put up a large 2021 budget with a quarter dedicated to public investment projects, which would create jobs and as we know many construction jobs are going to poor families that are affected by the pandemic so this will support some of the recovery,” she added.

World Bank Country Director for Brunei, Malaysia, Philippines and Thailand Ndiamé Diop, for his part, said that “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.”