World Bank turns more pessimistic as calamities add to pandemic gloom

MANILA, Philippines — Typhoon damage compounded the unprecedented economic scarring to be left by the pandemic this year, prompting the World Bank to turn more pessimistic on the Philippines.

The Washington-based lender now sees the economy, as measured by gross domestic product (GDP), shrinking 8.7% year-on-year, deeper than the October forecast of 6.9%, according to the agency’s latest assessment released Tuesday.

A wider contraction means a much lower base aiding a stronger bounce-back. For 2021, GDP is projected to grow 5.9% from 5.3% seen previously. By 2022, the economy is forecast growing 6%, faster than 5.6% originally. 

Both figures however fell below the government’s recently revised targets of 6.5-7.5% for 2021 and 8-10% for 2022. GDP has sunk 10% for the first 3 quarters, already the worst in available record since 1985.

“We expect the Philippines to grow back in the next 2 years assuming that the tangible results in containing the virus continues,” Ndiame Diop, the lender’s director for Brunei, Malaysia, Thailand and the Philippines, said.

“We know that the Philippines’ production capacity will be ready when the demand recovers,” he told reporters in an online briefing.

Explaining the bleaker projection this year, Rong Qian, senior economist, said third quarter output that sank 11.5% was weaker than anticipated. On top of that, five typhoons that battered Luzon in just 2 weeks in October would hamper recovery already evolving slowly since movement restrictions were lifted in June.

As a result of weaker economic performance, 2.7 million Filipinos would be thrown back to poverty gauged by the World Bank as people living below $3.2 a day. Should growth turn out as planned over the next 2 years, Qian said poverty should go back to prepandemic levels by 2022.

But other downside risks to the economy loom. Apart from natural disasters resulting into calamity-stricken communities already reeling from pandemic, government could get overwhelmed by challenges and resources depleted for it to launch a convincing response. A return to lockdowns that crippled economic activity would also be disastrous.

“A second wave may lead to stricter containment measures, which could dampen economic activities, lower consumption growth, and delay the implementation of public infrastructure projects, pushing the economy into a deeper recession in 2020 and a more protracted recovery in the medium term,” Qian pointed out.

As it is, the World Bank has avoided comparing other countries’ fiscal response with that of the Philippines, which some observers outside the bank had criticized for being too small. Qian only went as far as saying that Bayanihan to Recover As One, which adds only P140 billion to the existing P4.1-trillion budget, as “more surgical” in approach than its predecessor that expired last June.

Instead, Diop voiced support to the economic managers’ push for structural reforms including that of the tax system, as part of rebound strategy. A concentration on infrastructure spending was likewise applauded.
“It is encouraging that authorities focus on structural reforms. We couldn’t agree more,” he said.

Beyond state resources, the central bank was also found with sufficient space to assist in pandemic recovery despite benchmark rates already at their record-lows. Qian cited “other tools” such as banks’ reserve requirements which remain as one of the region’s highest and can still be lowered to give banks more cash to lend.

Despite numerous developments, the World Bank does not see a coronavirus vaccine getting rolled out next year, although if it does, economic growth globally including the Philippines would get a massive boost.

“It’s really important to make sure reopening of the economy is sustainable and we don’t revert to another lockdown as before,” Qian said.