MANILA, Philippines — The coronavirus pandemic will pull down the global economy to its worst post-war recession, bringing with it economies like the Philippines which is poised to notch its weakest growth in more than two decades.
In its latest World Economic Outlook released Tuesday, the International Monetary Fund (IMF) projected the global economy to contract 3% this year, which if realized, would beat the 1.7% drop in gross domestic product (GDP) recorded a year after the 2008 global financial crisis.
“It is very likely that this year the global economy will experience its worst recession since the Great Depression, surpassing that seen during the global financial crisis a decade ago, " the IMF said in its report.
"This time, the crisis is to a large extent the consequence of needed containment measures. This makes stimulating activity more challenging and, at least for the most affected sectors, undesirable,” it added.
The economic impact will be widespread, although will be felt at varying degrees. In the Philippines, GDP is still seen to grow, albeit at a miniscule 0.6% this year, far slower than the 5.9% recorded a year ago.
Across regions, GDP in advanced economies such as the US and Italy, which are also home to most number of coronavirus cases, are projected to lose drop 6.1% due to the pandemic, while emerging markets like China where the virus originated, are seen to lose only 1%.
The entire Europe, specifically, is seen to contract at a faster rate of 6.6% than the US’s 5.9%. China, which has enjoyed strong growth in past couple of years, will still be growing but on a much-constrained pace of 1.2% this year.
IMF said forecasts consider that the pandemic will fade in the second half of this year when lockdowns and movement restrictions are already “gradually” being eased. At that baseline scenario, it sees everything going back to normal in 2021.
But the lender was also quick to note of the “extreme uncertainty” on how the novel coronavirus will behave, and as such the exact economic fallout and its “intensity” will be difficult to predict.
“The immediate priority is to contain the fallout from the COVID-19 outbreak, especially by increasing healthcare expenditures to strengthen the capacity and resources of the health sector while adopting measures that reduce contagion,” IMF said.
Safety nets to support affected populations and enterprises are also prescribed, although IMF noted that for developing economies with tight budgets, these can be harder to take than in advanced economies with healthy balance sheets. Social programs can include “temporary and targeted policies” such as cash transfers, wage subsidies, tax relief and debt payment moratorium, prescriptions which the Philippines, in one way or another, have already taken.
Beyond the archipelago, developing economies that make up the ASEAN-5 are likely to contract 0.6% on average this year, led by a massive 6.7% GDP drop in Thailand and 1.7% dip in Malaysia. Vietnam is projected to remain the strongest with growth forecast to slow to 2.7%.
A weaker economic performance would inevitably lead to more jobless people, while weakening demand for commodity prices and therefore, tempering inflation. In the Philippines alone, the unemployment rate would likely hit 6.2% in 2020, up from 5.1% last year. Inflation will go the other way around, and slow to 1.7% in 2020 from 2.5% in 2019.
Trade will remain luckluster, with the volume of global shipments poised for an 11% slide, IMF projections showed.
2021 recovery
A global bounce-back in 2021 was penciled in by the IMF. The global economy would likely grow 5.8% next year if the pandemic comes under control. China would lead the rest in GDP growth at a projected 9.2% next year.
The Philippine economy would likely accelerate 7.6% next year, slightly slower than the ASEAN-5 average of 7.8% but among members would be next only to Indonesia’s 8.2%. The entire Europe would probably post a 4.5% GDP uptick.
“Uncertainty about contagion could lead to persistent voluntary social distancing and subdued consumer demand for services. Firms may only slowly start hiring workers and expanding payroll because they remain unsure about the demand for their output and about securing parts and components, and if they worry about attrition of workers’ skills following a spell of unemployment,” the lender explained.
“Clear and effective communication about the state of the pandemic and the decline of new infections will be essential,” it added.