IMF sees PH economy shrinking 3.6% in 2020

MANILA, Philippines — The International Monetary Fund (IMF) has further downgraded its economic outlook for the Philippines, projecting gross domestic product (GDP) to shrink by 3.6 percent this year.

The updated GDP forecast contained in the IMF’s World Economic Outlook June 2020 Update report released on Wednesday night reversed its earlier forecast in April of at least 0.6-percent growth in 2020.

The IMF’s updated GDP projection for the Philippines is worse than the government’s estimates of 2-3.4-percent decline.

The IMF nonetheless projected the Philippine economy to revert to a 6.8-percent growth next year.

“The downward revision to growth forecasts is mostly attributable to larger-than-expected supply disruptions related to COVID-19 and weaker demand in major trading partners,” said IMF resident representative in the Philippines Yongzheng Yang in an email, partly referring to the impact of the lockdown imposed in mid-March, said to be among the most stringent in the region as it halted 75 percent of domestic economic activity.

“We now expect the resolution of COVID-19 to be more gradual and hence the impact of the pandemic on economic growth to be larger and longer than previously anticipated. With the latest downgrade of the global outlook, the external environment for the Philippines has also worsened,” Yang said.

The IMF expects the global economy to shrink by 4.9 percent this year, 1.9-percentage points lower than the estimate in April.

“The adverse impact on low-income households is particularly acute, imperiling the significant progress made in reducing extreme poverty in the world since the 1990s,” the IMF said.

In the case of the Philippines, Yang said the policy fiscal and monetary responses by the government and the Bangko Sentral ng Pilipinas to fight the health and socioeconomic crises caused by the COVID-19 pandemic so far were appropriate.

“Fiscal measures have rightly targeted the health sector, the vulnerable people and affected businesses. Monetary policy responses have been swift, with cuts on the interest rate and banks’ reserve requirements,” Yang said.

“To protect the recent progress on poverty reduction, social protection programs should be strengthened as current temporary income support measures are phased out. Moreover, speedy policy implementation will be crucial to mitigate the scarring effects of COVID-19 on the economy,” Yang added.

As the legislative and the executive branches of the government finalize the bills aimed at a “V-shaped” economic recovery, Yang said the Philippines still had some policy space for additional stimulus if needed.

“Owing to prudent debt management over the recent years, the Philippines’ public debt-to-GDP ratio is well below the emerging market average. The government therefore has room to provide additional fiscal support, as needed, to the health sector, affected people and businesses. There is also room to cut further the policy rate and banks’ reserve requirements. Moreover, the Philippines has accumulated ample international reserves as a policy buffer against disorderly market conditions,” Yang said.