The Asian Development Bank (ADB) sees growth across developing Asia-Pacific falling to a 59-year low largely because of the COVID-19 pandemic, with the Philippines suffering a 3.8 percent drop in gross domestic product (GDP).
The ADB’s Asian Development Outlook (ADO) Supplement report released on Thursday (June 18) showed that it reversed its GDP forecast for the Philippines from 2 percent growth as “household consumption and investment slowed more than expected” in the first quarter of 2020.
First-quarter GDP shrank 0.2 percent, which had been attributed to Taal Volcano’s eruption in January and the COVID-19 pandemic, which not only slowed global trade and tourism but also forced a domestic lockdown since mid-March to contain the disease.
The ADB’s updated forecast was within the government’s projection of 2-3.4 percent full-year contraction.
“The contraction in the global economy will continue to drag external trade, tourism and remittances” in the Philippines, the Manila-based multilateral lender said.
“The forecast for 2021 is maintained at 6.5 percent, supported by public infrastructure spending and anticipated recovery in consumer and business confidence,” it added.
Across developing Asia, the ADB projected 0.1-percent growth—poised to be the region’s slowest economic expansion since 1961.
ADB said regional growth in 2021 could rise to 6.2 percent but GDP levels would remain below projections and trends prior to the health crisis.
“Economies in Asia and the Pacific will continue to feel the blow of the COVID-19 pandemic this year even as lockdowns are slowly eased and select economic activities restart in a ‘new normal’ scenario,” said ADB chief economist Yasuyuki Sawada.
“While we see a higher growth outlook for the region in 2021, this is mainly due to weak numbers this year, and this will not be a V-shaped recovery,” he said.
“Governments should undertake policy measures to reduce the negative impact of COVID-19 and ensure that no further waves of outbreaks occur,” Yasuyuki added.
In a June 17 report titled “Asean-4: Worst Recession since the Asia Crisis,” the Washington-based Institute of International Finance (IIF) said the economies of Indonesia, Malaysia, the Philippines and Thailand were expected to contract by a cumulative 3.2 percent this year.
Last week, the Inquirer reported that the IIF expected the Philippine economy to shrink year-on-year during all four quarters of 2020 and end the year with a 3-percent contraction.
“These countries were affected by the pandemic earlier than other parts of the world as a result of their geographic proximity as well as close economic ties to China,” said an IIF report by associate economist Yuanliu Hu, economist Benjamin Hilgenstock and deputy chief economist Elina Ribakova.
“Despite the earlier appearance of the virus, its spread is still not under control in parts of the region,” they said.
“To prevent a further spread, strict lockdown measures have been adopted, and some remain in place. We expect only a gradual reopening in the Asean-4 towards the end of June, with important implications for full-year economic growth,” they added.
“Widespread lockdowns and travel bans will have a substantial impact on the tourism industry as well as domestic demand, while weakening activity in major trading partners will be a drag on exports,” IIF said.
“Forecast downgrades are largest for Thailand and the Philippines, where first-quarter data already show substantial weakness, and Malaysia, where a longer-than-expected lockdown will be challenging for the economy,” it said.
“Indonesia will also slide into recession, its first since the Asian financial crisis,” IIF said.
“The pandemic’s most immediate impact on the Asean-4 has been via the tourism industry, as flights were canceled, attractions closed, and travel restrictions adopted,” it said.
“The tourism sector has become an important driver of economic growth and a stabilizer of current account positions for these economies in recent years,” IIF said.
“In 2019, tourism receipts represented close to 12 percent of GDP in Thailand, 6 percent in Malaysia, and around 2 percent in Indonesia and the Philippines,” it added.
“Aside from tourism, the COVID-19 pandemic affects Asean-4 countries through multiple channels,” IIF said.
“Extended lockdowns and lower income expectations will hold back domestic demand, in particular private consumption, which has become an increasingly important driver of growth in the region,” it said.
“Over the last decade, private consumption accounted for roughly 50 percent of overall GDP growth in Indonesia in Thailand, above 60 percent in the Philippines, and above 70 percent in Malaysia,” IIF added.
In separate reports last Wednesday (June 16), the UK-based think tanks Capital Economics and Oxford Economics said recovery in the Philippines, Indonesia and India was expected to lag behind in the region as COVID-19 cases in these three countries have yet to peak.
“The high-frequency data that we track suggest that while all countries in the region are now rebounding, the pace of recovery varies significantly,” said Gareth Leather, Capital Economics senior Asia economist in a report titled “Tracking the recovery.”
“In the Philippines, Indonesia and India, where restrictions on movement and commerce are still in place and case numbers are showing little sign of coming under control, our recovery trackers are still at least 40-percent below normal levels,” Capital Economics said.
In Oxford Economics’ report titled “Plotting recovery paths,” head of India and Southeast Asia economics Priyanka Kishore also placed the same three countries at the bottom of the pack in the region in its recovery scorecard.
“All three are clearly still struggling to get past the peak of the pandemic, which is a major headwind to their outlooks,” said Kishore.
“At the same time, the fiscal policy response has been quite meager in both India and Philippines, especially compared to the stringency of lockdowns they had imposed—which at one point were not only among the most severe in Asia but also globally,” Oxford Economics said.