If the Philippines could contain its local COVID-19 outbreak by midyear, the economy would still grow although by a slower 2 percent in 2020, the Asian Development Bank (ADB) said on Friday (April 3).
But the Manila-based multilateral lender warned that economic recovery may lag if its engines—the supply chain, businesses, and their workforce—cannot be jumpstarted as soon as possible.
“Risks are tilted to the downside,” the ADB said.
“The main downside risk to GDP [gross domestic product] growth in 2020 comes from COVID-19 and is therefore highly unpredictable,” it said.
“The impact on the economy will be larger than currently assumed if the global outbreak is prolonged beyond the first half, or if there is a sustained local transmission in the Philippines,” the ADB said in its Asian Development Outlook (ADO) 2020 report.
In a special chapter that discussed the impact of the COVID-19 pandemic on Asia-Pacific economies so far, ADB projections showed that the Philippines may shed over 4 percent of GDP from a domestic COVID-19 outbreak, on top of a smaller less than 2 percent of GDP impact coming from global spillovers.
According to the ADB, “a less-desirable U-shape recovery is possible if disrupted supply chains are not restored quickly, workers are not rehired immediately, or businesses are slow to restart operations” in the Philippines.
Luzon—which accounted for more than 70 percent of national GDP—and other parts of the country were already in the third week of a month-long enhanced community quarantine, but officials have yet to decide if the massive lockdown until mid-April should be extended or not.
Many in the business sector preferred a less restrictive and localized containment of the COVID-19 disease.
The ADB said the ongoing quarantine will “weigh heavily on domestic demand.”
The negative impact on consumption will also be “compounded by the impact of the outbreak in other countries on tourism, trade, and remittances,” the ADB said.
In the case of tourist arrivals, preliminary government data cited by the ADB showed a 41.4-percent year-on-year drop in February—reversing the 9.8-percent increase last January—as the lender noted that the early COVID-19 hotspots China and South Korea composed 45 percent of inbound foreign visitors.
Also, the ADB said “second-round effects that emerged as global supply chains were disrupted have affected manufacturing and merchandise exports.”
“Remittances from overseas Filipino workers, equivalent to 9 percent of GDP, will also slow. Large flows of remittances come from the US, Europe, and the Middle East, which collectively supply 70 percent of all remittances”—regions also currently grappling with the pandemic, the ADB added.
Financial markets such as the stock market also experienced a slump, while the peso slightly depreciated.
“This unprecedented and extraordinary public health emergency brought about by the COVID-19 pandemic will substantially slow down economic growth this year, with most of the contraction in the economy occurring in the second quarter,” said Kelly Bird, ADB country director for the Philippines, in a statement.
“We are anticipating a bounce back starting in the second half of this year, supported by the government’s stimulus spending and easier monetary policies,” Bird said.
Bird said the ADB has been working closely with the Philippine government to ease the impact of the pandemic. Grants totaling $8 million had been given.
“We now in advanced stages of preparing a large and comprehensive assistance,” Bird said.
While 2020 will be a challenge for the Philippine economy, the ADB said the country’s “expansionary government policies… should facilitate an upturn in 2021.”
In 2021, the ADB sees Philippine GDP growth to settle at the lower end of the government’s 6.5 to 7.5 percent target.
“In 2021, a V-shape recovery is expected with growth reaching 6.5 percent, provided that the effects of the virus outbreak dissipate by June 2020,” the ADB said.
For the ADB, recovery will be achieved if the government sustained gains in rolling out its ambitious infrastructure development program called “Build, Build, Build,” on top of strong rebound in private consumption and investment.
Edited by TSB
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