The Asian Development Bank (ADB) forecasts that the Philippine economy may likely contract by 7.3% this year due to the Covid-19 pandemic before its growth returns to 6.5% next year.
In its Asian Development Outlook (ADO) 2020 Update report, the bank projects a deeper decline in the Philippines’ economy than ADB’s April forecast of 3.8-percent contraction, with subdued private consumption and investment expected for the rest of the year and uncertainties about the global economic recovery.
The report said the country’s economy is expected to rebound in 2021 as the outbreak is contained, and more government stimulus measures are implemented, adding that certain downside risks next year include a slower than expected global recovery that could weigh heavily on trade, investment, and overseas Filipino worker remittances.
“We believe the worst is now over and that the contraction in GDP bottomed out in May or June this year. The package of measures the government rolled out such as income support to families, relief for small businesses, and support to agriculture in the second quarter all helped the economy to bottom out,” said ADB Country Director for the Philippines Kelly Bird in a statement.
Bird said they expect the recovery to be “slow and fragile” for the rest of this year, and growth to accelerate in 2021 on the back of additional fiscal support and an accommodative monetary policy stance.
“ADB has thrown its full support to the government’s Covid-19 response, delivering a combination of loans and grants to help finance measures aimed at lessening the pandemic’s impact on lives and livelihoods,” he added.
ADB has so far provided about USD2.3 billion in loans and grants to support the government’s urgent Covid-19 response, including social protection and livelihood support to help mitigate the impacts on livelihoods and employment and assistance to further scale up the government’s health response against the pandemic.
Following a contraction of 9.0 percent in the first half of 2020, a slow economic recovery is expected to start in the second half of 2020, as the government’s fiscal response gains traction and household consumption slowly picks up on a jobs rebound.
The employment situation in July improved markedly from April with the relaxation of community quarantines in June.
The services sector was the main job creator with 3.4 million jobs added between April and July, followed by agriculture and the industrial sector, with 2.1 million and 2 million, respectively. Consequently, the unemployment rate fell from 17.7 percent in April to 10.0 percent in July.
The government is preparing an additional fiscal support package for implementation starting this month which is expected to include cash subsidies to poor households; support for displaced workers and critically affected sectors such as agriculture, tourism, and transportation; and relief to the health care system, among other measures.
Such measures will have high multiplier effects and keep the economy on track to recovery next year.
The ADB report revised the Philippines’ inflation forecasts to 2.4 percent in 2020 and 2.6 percent in 2021, compared with the April projections of 2.2 percent and 2.4 percent, respectively, as global oil prices stabilize. The forecasts are within the Banko Sentral ng Pilipinas target range of 2–4 percent, with monetary policy likely to continue to help the economy’s rebound from the pandemic.