World Bank sees worst GDP drop in 35 years

With COVID-19 still not contained in the Philippines, the World Bank sees gross domestic product (GDP) shrinking by 6.9 percent this year—the worst drop in 35 years—even as the country’s chief economist expects slower third-quarter contraction than the record fall at the height of the lockdown in the second quarter.

The Washington-based multilateral lender’s updated GDP forecast for the Philippines, contained in its October 2020 East Asia and Pacific Economic Update report released on Tuesday, was a steeper fall than the 1.9-percent decline projected in June.

The forecasts of the World Bank as well as most other banks and financial institutions were beyond the government’s projection of a 4.5-6.6 percent full-year contraction.

Acting Socioeconomic Planning Secretary Karl Kendrick Chua told the Inquirer on Tuesday that the economic team was constantly reviewing its own forecast as new data came in.

But Chua, who heads the state planning agency National Economic and Development Authority (Neda), said he believed that the worst was over for the Philippine economy.

Citing the latest monthly manufacturing, external trade and labor data, Chua said these “suggest improvement” from the second-quarter GDP, which fell by a record 16.5 percent as 75 percent of the economy was put to a halt by the most stringent COVID-19 quarantine in the region from mid-March to May.

Manufacturing and trade data remained negative to date, however, such that Neda Undersecretary Rosemarie G. Edillon told a press conference Tuesday that the third-quarter performance would likely remain negative year-on-year.

The World Bank’s full-year GDP forecast, if realized, would match the 6.9-percent economic contraction in 1985, at the height of a debt crisis during the waning years of the Marcos dictatorship.

World Bank senior economist for the Philippines Rong Qian told an online press briefing on Tuesday that GDP would revert to prepandemic levels by end-2021, a slower pace compared to neighboring countries such as Indonesia, where COVID-19 cases also remained elevated.

Qian said it did not help that the Philippine economy was “much more connected to the world” than domestic-driven Indonesia, especially in terms of tourism, services and trade exports as well as remittances.

On top of the bigger exposure to global demand, the Philippines also had a longer and stricter COVID-19 lockdown, Qian added.

Qian agreed that the third quarter would be better than the second-quarter economic turnout, citing improving revenue collections as the economy gradually opened up.

However, Qian said recovery would further slow if COVID-19 cases in the Philippines spike and the country reverted to a lockdown or if the global economy would slide into a deeper recession.

Based on the World Bank’s poverty threshold for lower middle-income countries of $3.2 a day per capita in 2011 purchasing power parity (PPP), the lender estimated the Philippines’ poverty rate to rise to 22.4 percent this year from 20.5 percent last year, “despite the government’s efforts to mitigate the negative effects of the pandemic on poor and vulnerable households.”

Qian said this would translate to about two million more Filipinos becoming poor in 2020.

“If wage and nonfarm employment increase with GDP growth and inflation is stable, the poverty rate will likely decline back to its 2018 level by 2021 and maintain a downward trend through 2022,” the World Bank said.