IMF turns more pessimistic on PH economy this year

The Philippine economy is seen contracting by 8.3 percent this year—poised to be its biggest annual gross domestic product (GDP) drop in history —as the COVID-19 pandemic soured consumer confidence and private investments due to prolonged quarantine restrictions, the International Monetary Fund (IMF) said.

In its October 2020 World Economic Outlook (WEO) report released on Tuesday, the Washington-based multilateral lender further downgraded its GDP forecast for the Philippines from its previous projection of 3.6-percent contraction in June.

Amid the pandemic, the IMF expects the unemployment rate in the Philippines to jump to 10.4 percent in 2020 from 5.1 percent last year.

In an email, IMF resident representative in the Philippines Yongzheng Yang said the worse GDP expectation for 2020 “mostly reflects a larger-than-expected downturn in the second quarter and a more gradual resolution of the pandemic as witnessed over the past months, with prolonged social distancing.”

GDP fell by a record 16.5 percent year-on-year during the April-to-June period—at the height of the longest and most stringent COVID-19 lockdown in the region, shedding millions of jobs and risking to reverse poverty-reduction gains in recent years.

“Weak public confidence and low remittances as a result of the pandemic are expected to continue weighing on private investment and consumption. The negative impacts of COVID‑19 are expected to be only partially offset by policy support,” Yang said.

With millions of Filipinos working or living abroad during a global recession, the IMF’s WEO report said “the risk of a decline in payments and transfers from migrant workers back to their home-countries is very significant, particularly for such countries as Bangladesh, Egypt, Guatemala, Pakistan, the Philippines and those in sub-Saharan Africa more broadly.”

Significant weakening of remittance flows weighed on domestic spending in the Philippines, the IMF said.

But as the Philippines gradually opened up its economy by easing quarantine restrictions while maintaining health and safety standards in place, green shoots of economic recovery have been evident, Yang said, such that GDP is projected to rebound to a 7.4-percent growth next year, a better forecast than the earlier 6.8-percent expansion seen by the IMF for 2021.

The IMF also expects the unemployment rate to ease to 7.4 percent next year, although still higher than the prepandemic level.

“We have seen some signs of recovery in high frequency data with the gradual reopening of the economy. Real GDP is projected to expand by 7.4 percent in 2021, helped by—in addition to the base effect—an expected rebound in pent-up demand from the relaxation of quarantine measures and continued effects of the policy easing in 2020,” Yang said.

However, the pandemic had already wreaked havoc on the economy—Yang said “significant scarring effects (such as hysteresis and bankruptcies) are expected.”

Asked how the Philippines could bounce back from the pandemic-induced recession, at the same time resume more jobs and minimize the number of Filipinos sliding back to poverty, Yang replied: “It is important to maintain accommodative macroeconomic policies during the recovery phase and continue pursuing structural reforms to create more jobs, enabling a more conducive business environment, and providing a stronger social safety net for the poor and vulnerable.”

“Once a sustainable recovery is underway, fiscal policy priorities should shift from income support to aggregate demand support, including a renewed infrastructure push in emerging growth areas such as digitalization, health care and climate change. Priority for investment in the short term should be given to projects that would generate more, immediate jobs. Furthermore, social protection programs should be strengthened as current temporary income support measures are phased out,” Yang said. INQ