PH economy to shrink by 8.3% in 2020, left 'significantly scarred' by pandemic – IMF

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(FILE PHOTO)

Metro Manila (CNN Philippines, October 13) — The Philippine economy will likely contract by 8.3 percent in 2020 and will be left "significantly scarred" by the COVID-19 pandemic in the years ahead, the International Monetary Fund said.

In its October World Economic Outlook (WEO) report published Tuesday, the global lender said the Philippines will fare far worse than the previously projected contraction.

"The downward revision of 2020 growth forecasts for the Philippines from -3.6 percent in the June WEO to -8.3 percent in the October WEO mostly reflects a larger-than-expected downturn in Q2 and a more gradual resolution of the pandemic as witnessed over the past months, with prolonged social distancing," IMF country representative Yongzheng Yang said via e-mail.

The economy shrunk by 16.5 percent in the second quarter, the sharpest since available records in the 1980s to officially place the Philippines in recession.

"Despite a somewhat softer global contraction expected in the October WEO, weak public confidence and low remittances in the Philippines as a result of the pandemic are expected to continue weighing on private investment and consumption," Yang added.

The revised projection for the Philippines is the opposite of the IMF's estimate for global output, which it pegs at a relatively shallower 4.4 percent contraction against the 4.9 percent projected in June. By next year, the world economy may manage a 5.2 percent growth, according to the IMF.

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The pandemic is seen to send close to 90 million people into extreme deprivation following the "Great Lockdown," the IMF said. It previously dubbed the pandemic as "a crisis like no other."

There are more than 37 million COVID-19 cases in the world, which has led to over a million deaths. In the Philippines, the infection continues to rise by the thousands daily, settling at 344,713 as of Tuesday.

The IMF said prospects have "worsened significantly" among emerging markets like the Philippines, as it noted that overall recovery will be long, uneven, and uncertain.

The Philippines' contraction is among the worst in Asia, only third to Macau's 52.3 percent slump and India's 10.3 percent contraction.

Only China and Vietnam will grow by 1.9 percent and 1.6 percent, respectively, while Taiwan will see output stay flat.

"Most economies will experience lasting damage to supply potential, reflecting scars from the deep recession this year and the need for structural change," the report read.

The Philippines is expected to bounce back with a 7.4 percent growth next year, but it's mostly due to a low base and the unrolling of "pent-up demand" after months of strict quarantine and policy easing.

"Nonetheless, significant scarring effects (e.g., hysteresis, bankruptcies) are expected and it will take a couple of years before real GDP to return to the pre-pandemic (2019) level," Yang added, citing larger-than-usual risks to growth.

On the upside, Yang said the pandemic slowdown may be used to fast-track key reforms like the national ID and easing of investment restrictions.

The Asian Development Bank sees a 7.3 percent contraction, while the World Bank pegs the downturn at 6.9 percent this year. All of these estimates are deeper than the 5.5 percent forecast decline of the economic team, but falls within the 7-9 percent estimate given by central bank Governor Benjamin Diokno.