ADB sees Philippines growth slowing sharply to 2%

But strong recovery expected in 2021 if virus curbed by June

MANILA, Philippines — The country’s growth is expected to significantly slow this year to two percent, but prospects of a strong rebound to 6.5 percent in 2021 loom if the spread of the COVID-19 disease is curbed by June, according to a new report by the Asian Development Bank (ADB) said.

In its Asian Development Outlook 2020, the Manila-based multilateral bank said most of the contraction would occur during the second quarter in line with the enforcement of the Luzon-wide enhanced community quarantine (ECQ) that put the brakes on most economic activity in the country’s main island that generates around 70 percent of the country’s gross domestic product (GDP).

The quarantine measures have driven most people to work from homes as schools, government offices and non-essential businesses were shuttered. Public transportation was also suspended, severely limiting the movement of people.

Assuming, however, that the spread of the coronavirus disease is restrained by June and the economic stimulus by the government makes its way into the economy, recovery can begin in the second half of the year, ADB said.

 “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. We are anticipating a bounceback starting in the second half of this year, supported by the government’s stimulus spending and easier monetary policies,” said ADB country director for the Philippines Kelly Bird.

Growth in consumer prices can be expected to be stable at 2.2 percent this year and 2.4 percent in 2021 “with further downside pressure” because of lower global oil prices.

With the headline inflation rate seen remaining well-within the central bank’s target range of between two percent to four percent this year, monetary authorities have room for further policy action to cushion any remaining effects of the pandemic on the economy.

 “ADB has been working closely with the Philippine government in its fight to ease the impact of the COVID-19 pandemic on Filipinos. We have provided two grants totaling $8 million to assist the government and we are now in advanced stages of preparing a larger and comprehensive assistance to help alleviate the impacts of the pandemic on communities’ well-being and support fiscal stimulus,” said Bird.

On March 14, ADB approved a $3-million grant to help the government deliver much-needed emergency medical supplies and equipment, including a new laboratory to enhance the country’s capacity to conduct more COVID-19 tests.

This week, ADB launched a $5-million project to provide critical food supplies for vulnerable families in Metro Manila and surrounding areas.

Sustaining public investment, especially for priority projects under the government’s Build Build Build infrastructure development program, alongside a rebound in private consumption will drive economic growth in 2021, the ADB report said.

The economy will also benefit from the government’s large-scale spending to boost the delivery of relief to vulnerable households affected by the pandemic.

As the COVID-19 disease continues to spread worldwide, growth in developing Asia is likewise expected to slow down markedly to 2.2 percent this year, a downward revision from the 5.5 percent forecast in September 2019. Growth is expected to rebound to 6.2 percent  in 2021, assuming that the outbreak ends and activity normalizes.

Excluding the newly industrialized economies of Hong Kong, China; the Republic of Korea; Singapore; and Taipei, China, the rest of developing Asia is forecast to grow by 2.4 percent this year, before rebounding to 6.7 percent next year.

 “This is an extremely difficult time for the regional economy amid the COVID-19 pandemic. The downturn will leave no economy untouched,” said ADB chief economist Yasuyuki Sawada in an online presentation yesterday.

 “The evolution of the global pandemic—and thus the outlook for the global and regional economy—is highly uncertain. Growth could turn out lower, and the recovery slower, than we are currently forecasting. For this reason, strong and coordinated efforts are needed to contain the COVID-19 pandemic and minimize its economic impact, especially on the most vulnerable.”

The report said innovation can unlock faster growth in the region post-pandemic but will require sound education systems, innovative entrepreneurship, conducive institutions, deeper capital markets, and dynamic cities.