World Bank pegs PH recession at 1.9% this year, poverty to rise due to pandemic

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(FILE PHOTO)

Metro Manila (CNN Philippines, June 9) – The World Bank said it expects the Philippine economy to shrink by 1.9 percent this year amid the COVID-19 pandemic.

In its June 2020 Global Economic Prospects report published on Monday night, the Washington-based multilateral lender said the Philippines together with Malaysia and Thailand will “experience the biggest contractions this year” in the East Asia and Pacific region. The impact is large for Manila, as it was among the first to introduce lockdowns meant to contain coronavirus infections, ​World Bank senior economist Rong Qian said.

The forecast also assumes that strict stay-at-home rules will be gradually lifted from July onwards.

The World Bank projection is slower than the estimates of the Development Budget Coordination Committee, the Duterte administration's team of economic managers. The body said last month the country's gross domestic product will fall between 2-3.4 percent due to the economic effects of the pandemic. In April, the Washington-based lender expected a 3 percent growth, softer than previous estimates of above 6 percent.

The path to contraction mirrors the global trend, as even developing economies reel from shutdowns and depressed demand. World output is seen to shrink by 5.2 percent, with the combination of the United States, Japan and the Euro Area seen shrinking by 7 percent.

READ: World Bank says the pandemic could push 60 million people into 'extreme poverty'

The World Bank explained the country's expected GDP decline was due to domestic shutdowns, reduced tourism, disrupted trade and manufacturing, and financial markets spillovers ​because of the COVID-19 pandemic. Social distancing measures to limit public interactions, which are part of the "new normal," will also dampen economic activity for the rest of the year.

“The outbreak appears to have largely subsided in China, Malaysia, and Vietnam but has not yet peaked in some regional economies (Indonesia, the Philippines),” as stated in the report.

Qian told reporters in a virtual briefing on Tuesday that she expects more Filipinos to become poor, following news that 7.3 million Filipinos went jobless in April due to lockdown protocols. Estimates show that a two-month loss of income among poor and vulnerable families could push the poverty rate up by 3.3 percentage points, although this may be offset by cash subsidies.

RELATED: Labor groups blame gov't for massive job losses during pandemic

"The number of people who will stay in poverty and fall into poverty will depend on the effectivity of state programs," Qian said. There were about 17.7 million Filipinos or 16.7 percent of the population considered poor in 2018. 

The government released between ₱5,000-₱8,000 to 18 million families as the first tranche of cash aid, and is looking to release a second wave to families that remained under lockdown in May. Displaced workers and returning overseas Filipino workers were also given financial assistance as the public health crisis led to a "steep and deep" recession.

Qian said she expects a deeper contraction in the second quarter when the strict stay-at-home rules remained in Luzon, followed by a sustained recession in the third quarter. Muted growth may be seen in the last three months of 2020, she added.

More Filipinos will be fighting for jobs, as thousands of returning OFWs compete with locally retrenched workers. Household spending, which has long been driving economic growth, will also slump as people have less to spend while remittances are also scarce.

READ: Gov't pledges construction jobs to thousands of returning OFWs

Stimulus plans

The World Bank also noted that Indonesia and the Philippines will enforce “sizable fiscal stimulus packages ranging around 3-5% of the GDP.”

The Department of Finance has rolled out a ₱1.74 trillion four-pillar response, including over ₱200 billion to be released as cash subsidies to workers displaced by the enhanced community quarantine in the country.

This is different from various economic stimulus bills pending in Congress, which seek to grant incentives, subsidies and tax breaks to the tune of over ₱1 trillion so companies, especially small firms, can recover.

Acting Socioeconomic Planning Secretary Karl Kendrick Chua said not all of these proposals are "fundable," noting that the government can also tap other non-cash measures such as monetary easing and relaxed regulations to support more sectors. For Qian, any attempt to perk up the economy should largely focus on providing social safety nets such as cash transfers and in boosting MSMEs.

George Barcelon, president of the Philippine Chamber of Commerce and Industry, reported during the briefing that many MSMEs have closed shop, while others managed to recover about 50-60 percent of usual sales by going online. He appealed to the Inter-Agency Task Force to accord some "flexibility" to small firms including restaurants to allow dine-ins subject to strict distancing rules.

READ: Restaurant dine-in operations can now resume in MGCQ areas, but no buffets

“The pandemic will likely further slow potential growth in the region by weakening investment and the supply chains that have been an important conduit for productivity gains over the past decade,” the World Bank assessment mentioned.

​Prospects are better for the next two years, with the World Bank seeing a 6.2 percent growth in 2021 and an even faster 7.2 percent by 2022. She added that the country's economic fundamentals remain strong.

The World Bank has given a total of $1.1 billion (around ₱55 billion) worth of loans to support the country’s COVID-19 response. Qian said the government still has space to borrow funds from foreign sources if needed, with the projected debt-to-GDP ratio of about 50 percent still manageable.

READ: Government debt climbs to ₱8.6 trillion in April

"They (authorities) probably could borrow a little more, but how you use the funds is equally important. Eventually you have to pay them back, it will come from taxpayers," she warned.

CNN Philippines' David Tristan Yumol and Melissa Luz Lopez contributed to this report.