IMF expects PH growth to remain almost flat in 2020, rebound in 2021

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Metro Manila (CNN Philippines, April 15) - As more countries close their factories and borders in response to the COVID-19 pandemic, the global economy may see the worst economic fallout since the Great Depression, the Philippines with it.

In its latest World Economic Outlook released on Tuesday, the International Monetary Fund (IMF) slashed its growth forecast for the Philippines to 0.6 percent this year.

This is a huge downgrade from their previous 6.3 percent growth projection in January.

IMF resident representative to the Philippines Yongzheng Yang told CNN Philippines the downward revision is mostly due to supply disruptions and weaker demand among the country's major trading partners in relation to the COVID-19 pandemic.

"Tighter global financial conditions, weaker public confidence, and lower remittances are also expected to weigh on private consumption and investment," Yang said in an email to CNN Philippines.

As the country's gross domestic product (GDP) expansion slows, job losses are expected to rise.

The IMF projection showed the unemployment rate in the Philippines will increase to 6.2 percent this year, up from 5.1 percent in 2019, before settling down to 5.3 percent in 2021.

The latest outlook is based on the assumption that the virus outbreak will peak in the second quarter of 2020, leading to a gradual recovery in the second half of the year.

Yang said the negative impact of the COVID-19 crisis can be partially offset by policy support, which should focus on both protecting public health and safeguarding people’s livelihoods.

He also stressed the need to get the virus under control, which is a prerequisite to saving livelihoods.

"By acting forcefully now with strong actions to stop the spread of infections, complemented by strong economic policy actions to support people and businesses, the crisis can be ended sooner with less human and economic cost," Yang said.

Philippine economy post-pandemic

The Washington-based lender remains optimistic that the country can make a strong recovery next year, with a full year growth projection of 7.6 percent for 2021.

Should this be achieved, the local economy would be performing stronger than the global economy, which the IMF expects to rebound to 5.8 percent in 2021.

"The downside risks mainly stem from potentially broader or longer lasting COVID-19 transmissions globally and locally, constraints on timely and adequate policy support, as well as more-than-anticipated worsening of external demand and financial conditions," Yang told CNN Philippines.

Yang said the country has room for additional policy stimulus given the relatively low level of public debt and manageable inflation expectations.

"We welcome the authorities’ fiscal and monetary policy responses to the impact of COVID-19," Yang said.

"Owing to prudent macroeconomic management, the Philippines has built considerable policy buffers in recent years, and both the government and the BSP have been making good use of this policy space," he added.

Yang highlighted the need to aid the vulnerable sectors of society amid this pandemic, saying the government's cash assistance program was a welcome move.

"It is critical to respond promptly and forcefully to the needs of the poor and the vulnerable, as well as the healthcare sector," Yang said.

"The government’s ₱200 billion cash aid program will provide much needed assistance to the 18 million low-income households," he added.

The IMF said global growth is expected to contract by 3 percent this year, a major revision from the 6.3 percent forecast in January. If realized, this would beat the 1.7 percent drop in global GDP recorded a year after the 2008 global financial crisis.

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"This makes the Great Lockdown the worst recession since the Great Depression, and far worse than the Global Financial Crisis," IMF said in the report released Tuesday.

"Policymakers are providing unprecedented support to households, firms, and financial markets, and, while this is crucial for a strong recovery, there is considerable uncertainty about what the economic landscape will look like when we emerge from this lockdown," it added.