Deeper GDP decline seen in Q2

Higher poverty incidence and a two-year delay in the Philippines’ bid to become an upper middle-income country are among the fallout from a recession, which the World Bank projected as a 1.9-percent contraction this year, even as the Washington-based multilateral lender pushed for digitization to fast-track economic recovery postpandemic.

World Bank senior economist for the Philippines Rong Qian told a virtual press conference Tuesday that they expected a “deeper” decline in gross domestic product (GDP) in the second quarter—the height of one of the most restrictive COVID-19 lockdowns in the region, following the 0.2-percent contraction during the first quarter.

As the economy gradually comes out of quarantine, GDP is still expected to shrink year-on-year in the third quarter, before “muted” growth in the fourth quarter, Qian said.

The recession will result in an “increase in poverty in 2020,” Qian said, although they could not estimate by how much given the extent of uncertainly brought about by the pandemic.

Qian said the World Bank earlier on estimated a potential increase in poverty incidence by 3.3 percentage points under a quarantine resulting in losses of two months’ worth of income, but she pointed out that the Philippine government had put in place social protection measures such as doleouts to poor families and displaced workers as well as wage subsidies to struggling small businesses, which could offset the possible reversal of gains in reducing poverty.

As of 2018, nationwide poverty incidence stood at 16.7 percent.

Once the Philippine economy recovers over the next two years, “poverty can decrease again,” Qian said.

GDP is expected by the World Bank to revert to growth of 6.2 percent next year.

The government targets to slash poverty incidence to 11 percent by 2022.

This year’s recession will also delay the Philippines’ rise to upper middle-income country status, likely by two years, Qian said.

The Washington-based multilateral lender World Bank defined an upper middle-income country as having a per capita income of between $3,956 and $12,235.

The latest data on the World Bank’s website showed that the Philippines had a per capita gross national income (GNI) of $3,830 in 2018, making it a lower middle-income country.

Last year, the Philippines should have already moved up to upper middle-income status were it not for the delayed budget approval, which slowed GDP growth to an eight-year low of 6 percent.

Amid the pandemic, GNI declined by 0.6 percent year-on-year during the first quarter.

The possible delay in climbing to upper middle-income country status, however, may benefit the Philippines at a time when it has to borrow more from multilateral lenders and bilateral development partners to replenish funds for COVID-19 response.

If the Philippines were to become an upper middle-income country this year, it would lose by 2022 the access to preferential interest rates currently enjoyed for borrowings from bilateral partners and multilateral institutions.

Moving forward, Qian said digital infrastructure would play a critical role in economic recovery.

“Measures that restrict mobility, regulate physical contact and limit business activity have forced more businesses and families to use the internet for transactions. This change in consumer behavior and firm operations is expected to continue even after quarantines end. To take full advantage of this situation and help the economy in recovering from the losses it has suffered due to the lockdown, the country must ramp up its efforts to accelerate the digitalization of the economy,” Qian said in a statement.

For World Bank acting country director for Brunei, Malaysia, the Philippines and Thailand Achim Fock, “during these difficult times, strengthening the capacity of the health-care system to control the outbreak while protecting poor and vulnerable households remains an urgent task for the country.” INQ