The Philippine economy is likely to contract by a steeper 8.5 percent this year and will be slow to recover next year as the country grapples with rising infections and continuing constraints in public transport alongside fiscal conservatism and weak public health institutions and leadership.
This is according to New York-based think tank Global Source, which further downgraded its gross domestic product (GDP) outlook this year from the original 7-percent contraction. Next year, it expects GDP to grow by 4 percent, which will bring the economy to just 95 percent of its precrisis level.
“In its fight against COVID-19, the Philippines is handicapped by weak public health institutions and what appears to be a leadership vacuum. In the same way that the President has been able to delegate management of the economy to his able economic managers headed by the Finance Secretary, perhaps the President ought now to find an equally competent alter ego to manage the health crisis,” said a Sept. 1 research authored by Filipino economists Romeo Bernardo and Marie Christine Tang.
Global Source’s GDP forecasts for this year and the next are more bearish than market consensus. Although the market is expecting the country to end the year in an economic recession, the consensus is only a 6.1-percent decline. Next year, on the other hand, would be a growth of 7.5 percent.
Global Source also said the government’s projected V-shaped recovery—or a strong recovery after a steep decline—in 2021 was unachievable due to shocks to demand and supply alongside massive unemployment, business disruptions and regulatory and political uncertainties.
Global Source added the government’s handling of the health crisis, which exposed long-standing institutional flaws, was “quite concerning.”
It cited, for example, the decision to go back to tighter restrictions in early August. Metro Manila and other provinces were placed anew under a modified enhanced community quarantine from Aug. 4 to 18.
The think tank noted this and raised the question of whether or not recently adopted disease management protocols and new spending would ensure that future lockdowns would already be localized rather than region-wide or national. “The supply gap in public transportation, already a major bottleneck precrisis, will continue as long as distancing protocols limit available carrying capacities in mass transits,” it added.
However, transport authorities were trying to redesign the transport network, which it said “added [a] layer of complication, [that] while helpful for medium-term development, will likely hinder short-term recovery prospects and will be particularly taxing for lower income groups with no alternative means of transport.”
It also noted that joblessness and the workforce’s move to informal sectors, where income and productivity are lower, would weigh on short- to medium-term demand recovery. “Even assuming that pent-up demand would spur spending next year once vaccination is widely available (which Global Source sees as a heroic assumption), it is difficult to be optimistic given the extent of joblessness—almost half of the labor force per an independent survey—and especially with job prospects overseas also uncertain,” it said.
Global Source said forecasts could still change, depending on the state of the world in the coming months.
“As it is, even countries that had initial success in combating COVID-19 continue to grapple with renewed outbreaks and resorting to repeated lockdowns,” it added.