MANILA, December 8, 2020- The multiple shocks that hit the Philippines - the COVID-19 health crisis, economic activities across the country frozen by quarantine measures, devastating typhoons in November, and the global recession - will likely shrink the economy by 8.1 percent in 2020, temporarily reversing gains made in poverty reduction in recent years. Sustained improvements in managing the pandemic and a possible rebound in the global economy, however, can help the country recover in 2021 and 2022.
These are among the key findings of the Philippines Economic Update (PEU) released today by the World Bank.
The current economic forecast is a revision from the -6.9 percent World Bank forecast in October, resulting from the deep contraction in the third quarter and the extensive damage and losses suffered by the country from the typhoons and floods in November.
"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 Ndiame Diop, World Bank Country Director for Brunei, Malaysia, Thailand and the Philippines. "While the Philippines is financially resilient, stronger coordination, execution and implementation will help further improve social and physical resilience to frequent shocks."
Typhoons Rolly (international name Goni), Siony (Atsani), and Ulysses (Vamco) that hit the country in November in just a span of two weeks have brought devastation to a large swath of Luzon, further darkening this year's growth outlook.
Prior to these disaster events, the economy had already posted a 10 percent contraction in the first three quarters, the worst since the 1985 debt crisis, due to a plunge in private domestic demand, deep contraction in investment activities, and weak exports. Private consumption, which accounts for two-thirds of the Philippine economy has declined at a record pace because of high unemployment and falling incomes.
The economic update says that the pandemic and natural disasters threaten to reverse the trend of a steady decline in poverty in recent years.
The results of a COVID-19 impact monitoring survey conducted in August 2020, show about 40 percent of households reporting a fall in income. Entrepreneurial income reportedly declined particularly among households engaged in non-farm business.
Remittances from abroad, a lifeline for many Filipino families, were reported to have fallen for two in five households that receive remittances, according to the survey. As a result, poverty is estimated to increase from 20.5 percent in 2019 to 22.6 percent in 2020 (measured against the World Bank lower middle-income poverty line of US$3.2/day).
The PEU, expects the Philippines to recover in the next two years, assuming continuing improvements in bringing down virus transmission. Policy makers are gradually allowing more industries to resume operations, thus reviving jobs and incomes, and boosting private consumption. This will help the economy bounce to a 5.9 percent growth in 2021 and 6.0 percent in 2022.
"While addressing the pandemic, the country needs to sustain focus on the structural reform agenda," said Rong Qian, World Bank Senior Economist. "Speeding up reforms that improve the business environment, foster competition, and strengthen resilience against natural disasters will support the economic recovery and boost productivity growth in the long term."
The PEU's current forecasts hinge on China's early recovery, alongside the expected rebound in the global economy in 2021, which will allow for export growth to recover, and larger remittance inflows to stimulate domestic demand.
The government is expected to ramp up its infrastructure spending starting in the fourth quarter of 2020, creating jobs in the construction sector. Pre-election activities in the run-up to the national election in 2022 will give an additional boost to demand as early as in the second half of 2021.
The PEU summarizes key economic and social developments, important policy changes, and the evolution of external conditions affecting the Philippines over the past six months. It also presents findings from recent World Bank analyses, situating them in the context of the country's long-term development trends and assessing their implications for the country's medium-term economic outlook.
The World Bank has been a partner of the Philippines for 75 years, providing, among other forms of support, economic analyses and updates. Since 1945, World Bank Group has mobilized funding, global knowledge, and partnerships to support the Philippines' efforts to alleviate poverty, upgrade infrastructure, improve health, nutrition, and education, strengthen resilience against climate change and natural disasters, promote peace, and enhance global competitiveness.
World Bank Group Response to COVID-19
The World Bank Group, one of the largest sources of funding and knowledge for developing countries, is taking broad, fast action to help developing countries strengthen their pandemic response. It is supporting public health interventions, working to ensure the flow of critical supplies and equipment, and helping the private sector continue to operate and sustain jobs.
The World Bank Group is making available up to $160 billion over a 15-month period ending June 2021 to help more than 100 countries protect the poor and vulnerable, support businesses, and bolster economic recovery. This includes $50 billion of new IDA resources through grants and highly concessional loans and $12 billion for developing countries to finance the purchase and distribution of COVID-19 vaccines.
