MANILA, Philippines—The COVID-19 pandemic will make 2.7 million more Filipinos poor this year on top of a record slide in the Philippines’ gross domestic product (GDP) or economic output in what could be the worst outturn post-war, the World Bank said Tuesday.
The Washington-based multilateral lender was nonetheless bullish about an economic recovery starting in 2021 as quarantine restrictions further ease and as COVID-19 vaccines become available.
The World Bank’s Philippine Economic Update for December 2020 projected GDP shrinking by a bigger 8.1 percent in 2020, from the previous forecast of 6.9 percent.
While more optimistic than the government’s estimate of 8.5-9.5 percent GDP contraction this year, the World Bank’s forecast was also worse than the prevailing record of 7-percent decline in 1984, at the height of a debt crisis during the waning years of the Marcos dictatorship.
The government last week estimated 2020 nominal GDP dropping to P18.19 trillion from P19.52 trillion last year.
World Bank senior economist Rong Qian attributed the downgraded 2020 forecast to the bigger-than-expected GDP contraction of 11.5 percent year-on-year during the third quarter of 2020.
The third quarter contraction came as quarantine measures were gradually eased and amid damage wrought by the string of typhoons that battered the country from October to November.
World Bank numbers
“The expected growth contraction in 2020 is likely to increase poverty in the short term, resulting in an additional 2.7 million poor people in 2020,” Qian said. This meant 2.7 million people breaching the World Bank poverty line of $3.2 per day per capita based on 2011 purchasing power parity among middle income countries like the Philippines, said Qian.
Qian said job losses and slower cash remittances from overseas were likely to push more Filipinos into poverty.
“The poor and vulnerable, are especially likely to experience significant welfare losses, given their limited capacity to manage risks,” said Qian.
“Household perceptions regarding their finances are bleak,” she said. She cited a World Bank household survey last August showing 88.6 percent of households “expressed concern over their finances.”
Using a different poverty line, the Philippine government’s official national poverty incidence rate stood at a low of 16.7 percent or 17.7 million Filipinos in 2018. But Acting Socioeconomic Planning Secretary Karl Kendrick T. Chua had already flagged a temporary increase in urban poverty amid the pandemic.
“As the threat of the COVID-19 pandemic dissipates and business activities gradually return to normal, the economic recovery is expected to contribute to poverty reduction,” Qian said. “The poverty rate is projected to fall to its 2018 level in 2021 and keep falling throughout 2022,” Qian added.
The World Bank sees the Philippines’ GDP growing by 5.9 percent in 2021 and 6 percent in 2022, although below the government’s target bands of 6.5-7.5 percent and 8-10 percent.
Qian said the 2021-2022 forecasts were based on expectations that private consumption will pick up alongside public investments bolstered by election-related spending starting mid-2021 ahead of the 2022 presidential elections.
“Growth will not be a fast rebound but gradual recovery given containment measures still in place next year,” Qian said.
Vaccination targets
Economic managers last week said the Philippines will stay under less restrictive quarantine during the first few months of 2021 and could only open its economy 100 percent by the time the vaccination level reaches 60 percent of the population towards the end of next year.
Qian said the World Bank did not take into account in its near-term baseline growth forecasts yet the timing of vaccine availability.
“If the vaccine would be rolled out next year, it will be an upside to our projection,” Qian said.
On the flip side, Qian said “a possible resurgence of COVID-19 is the most significant downside risk to the country’s growth outlook.”
“A second wave may lead to stricter containment measures, which could dampen economic activities, lower consumption growth, and delay the implementation of public infrastructure projects, pushing the economy into a deeper recession in 2020 and a more protracted recovery in the medium term,” Qian warned.
Qian nonetheless pointed to signs showing improving management of the pandemic in the Philippines.
“With the steady decline in daily cases despite the gradual re-opening of industries, the risk of reversing to stricter quarantine restrictions is likely reduced,” Qian said.
“If the positive trend persists, the infection curve is likely to flatten in the first half of 2021, which will help pave the way for a sustainable economic recovery in 2021-2022,” Qian added.
“Domestic demand is expected to recover as consumer and business confidence return, supported by a moderate pick-up in public infrastructure investment,” she said.
“An improvement in the external environment is expected to benefit exports and remittances inflows. Monetary policy is expected to be supportive of growth as inflation remains stable and within the target. Base effects will also come into play and contribute to growth in 2021 considering the deep contraction in 2020,” she added.
Back to spending
The government had programmed ramped-up infrastructure spending to P1.17 trillion next year and P1.15 trillion in 2022 to make up for the smaller P824.9-billion in expenditures this year as infrastructure budgets were slashed and realigned to COVID-19 response.
For Qian, “regaining momentum on the public infrastructure program will support economic recovery and increase growth potential which might have been negatively affected by the pandemic.”
Also, Qian said there was a need to make the Philippines ready for and resilient from natural calamities like typhoons, earthquakes and volcanic eruption, which lately aggravated the suffering of Filipinos already reeling from the health and socioeconomic ills inflicted by COVID-19.
“Given the frequency of natural disasters that hit the country, the impact of these events on the pace of economic recovery is highly uncertain as government post-disaster response is hampered by its effort to manage the pandemic,” Qian said.
“The series of natural disasters that hit the country while we are battling the pandemic highlights the importance of mainstreaming disaster risk reduction and climate change adaptation into policy and planning,” said another World Bank official, Ndjame Diop.
“While the Philippines is financially resilient, stronger coordination, execution and implementation will help further improve social and physical resilience to frequent shocks,” said Diop, World Bank country director for Brunei, Malaysia, Thailand and the Philippines.
In a separate Dec. 7 report, Malaysian financial giant Maybank projected herd immunity from COVID-19 happening in the Philippines likely by the first half of 2022 after a big portion of the population gets vaccinated.
“For large domestic markets (Indonesia and the Philippines), the vaccine is a game-changer given high infection rates, allowing the easing of lockdowns,” said Maybank Kim Eng analysts Chua Hak Bin, Lee Ju Ye and Linda Liu in a report titled “Year Ahead 2021: Asean — Herd Immunity and Escape Velocity.
Maybank noted that the Philippines was until now “struggling to flatten the pandemic curve and is facing the slowest recovery in mobility” despite the longest and most stringent COVID-19 lockdown in the region.
Herd immunity
In Maybank’s view, “significant easing of lockdowns and border controls can only materialize in mid-2021 when vaccines are more widely available in Asean.”
“Herd immunity will require coverage ratios of at least 65 percent, given low seroprevalence rates across Asean,” Maybank said. “COVID-19 cases across Asean is less than 1 percent of the population, even in Indonesia (0.21 percent) and the Philippines (0.4 percent), compared to about 4.2 percent for the US,” it said.
Based on Maybank estimates, herd immunity or coverage ratio of over 65 percent will be first felt in Malaysia, Singapore and Thailand by the fourth quarter of 2021, followed by Indonesia, the Philippines and Vietnam by early 2022.
The poorer Asean countries like Cambodia, Laos and Myanmar would likely achieve herd immunity in late 2022, Maybank said.
So far, Maybank said “recent vaccine purchases by Asean countries can cover only about 20-45 percent of their population, insufficient to reach herd immunity.”
In the case of the Philippines, Maybank noted that recent reports indicated upcoming purchases of 52.6 million doses, which would cover only 24 percent of the estimated over 108.7-million population.
Maybank expects the Philippines’ GDP to contract by 7.8 percent this year before reverting to 5.8-percent growth in 2021 and a faster 6.2-percent expansion in 2022.