The Philippine economy will see a deeper slump this year as the COVID-19 crisis remains uncontained in the country, pushing more people into poverty, the World Bank said.
In its latest report, the World Bank said it expected a full-year contraction of 6.9 percent, with the worst-case scenario of a 9.9 percent crash for the Philippines. This is a big downgrade from its June forecast of a 1.9 percent contraction, and is steeper than the government’s -5.5 percent estimate for 2020.
“Indonesia and the Philippines face uncertain prospects. The region’s two most populous countries after China have not so far succeeded in controlling the pandemic,” the multilateral lender said in its October 2020 Economic Update for East Asia and the Pacific. It noted that the country has been on a “cycle of repeated strict lockdowns and reopenings.”
“Both countries have the advantage of young populations but suffer from large informal sectors and poor living conditions for a large fraction of their population,” the report added.
Output has so far contracted by 9 percent as of June. World Bank economist for the Philippines Rong Qian said signs point to a better third quarter outturn, coming from a record 16.5 percent fall in the country’s gross domestic product from April-June.
Fiji, largely reliant on tourism, will see the sharpest drop in output at 21.7 percent this year, followed by Thailand at 8.3 percent. The Philippines will suffer the third-biggest plunge across Developing East Asia and the Pacific from baseline projections.
The World Bank added that the Philippines faces more challenging prospects given its greater reliance on global trade, tourism, and remittances, which could lead to an “uneven and volatile” path to economic recovery. Domestic economic activity has recovered in Asian states which have already contained the spread of the virus.
“Poverty in the region is projected to increase for the first time in 20 years: as many as 38 million people are expected to remain in, or be pushed back into poverty as a result of the pandemic (based on the upper-middle income poverty line of $5.50 a day),” the bank said.
Of these, 33 million would have otherwise escaped poverty if the pandemic did not hit, while another 5 million may be dragged back to poverty.
Qian said a little over two million Filipinos could be driven into poverty, with the “new poor” made up of workers unable to work or make a living due to the COVID-19 crisis.
She added that the Philippine economy will likely return to pre-pandemic levels by the end of 2021, but the risk of another spike in infections and a return to lockdowns could bog down the path to growth. “Recovery will be very slow but if the vaccine is available early next year, the recovery may be accelerated,” Qian said in a Tuesday media briefing.
World Bank country director Ndiame Diop added that cash transfers and cash-for-work programs are the way to go in easing poverty, noting that every peso placed directly on the hands of the vulnerable will be crucial in easing their struggles and in boosting domestic consumption. Stronger spending will also stimulate communities and breathe life into small businesses, which have also been hit hard by the crisis.
Presidential Spokesperson Harry Roque said the government is pushing for the gradual reopening of the tourism industry in a bid to pluck “new poor” Filipinos out of poverty, and providing credit to overseas Filipino workers displaced by the global crisis to help them bounce back.
Public policies should focus on “smart containment” measures that will address infections with minimal economic disruptions, alongside greater relief spending. Wider social protection must cover the existing and new poor, such as cash transfers, the lender said.
Aaditya Mattoo, World Bank’s chief economist for the East Asia and Pacific region, said investing in testing and tracing capacity will be the way forward in the absence of a vaccine.
Other economies in the region are faring better in putting the coronavirus outbreaks under control, with some beating the first wave of infections already.
The World Bank compared the COVID-19 response of Vietnam, Indonesia, and the Philippines where it found that contact tracing capacity in the Philippines remains “weak,” against Vietnam’s “strong” testing capacity that included a patient’s close contacts early on.
The region is seen to manage a 0.9 percent growth this year, only pulled up by China, Vietnam and Myanmar as most economies are poised to contract. A growth rebound is seen for 2021 at 7.4 percent.
The Philippines should likewise return to its growth path after this year’s recession, managing 5.3 percent in 2021 and 5.6 percent the year after. However, this is weaker than the 6.5-7.5 percent projected by President Rodrigo Duterte’s economic team.