The World Bank expects the Philippine economy will recover at a much slower pace than initially estimated due to resurgence of coronavirus infections and prolonged movement controls that held back the nation’s early signs of a rebound.
The Washington-based financial institution on Tuesday, June 8, downgraded its 2021 gross domestic product (GDP) outlook for the Philippines to 4.7 percent from an earlier estimate of 5.5 percent.
“The downward revision for this year was driven by the larger-than-expected contraction in the first quarter, the realization of case resurgence and reimposition of stricter quarantines, and the lingering challenges from elevated inflation and household income losses,” the lender said.
World Bank’s new GDP forecast is way below the Duterte administration’s revised economic growth target band of 6.0 percent to 7.0 percent for 2020.
Kevin C. Chua, World Bank senior economist said that reimposition of strict quarantine measures between Mach and April had “momentarily derailed” the economic recovery.
In addition, Chua said there are significant downside risks for nation’s growth prospects, such as a resurgence of infections due to entry of new virus variants, as well as tight global production of COVID-19 vaccines.
“While mass vaccination began in March, global vaccine supply constraints and vaccine hesitancy among Filipinos may delay widespread local inoculation,” Chua said.
Failure to effectively contain the virus or implement the mass vaccination program is also a key risk towards recovery, the World Bank economist said.
“There are also external risks including the risk of a slower-than-expected global recovery, disruptions in international logistics and global value chains, and trade protectionism,” he added.
In the first three-months of the year, the local economy contracted by 4.2 percent, the worst growth performance among Southeast Asian nations, such as Thailand (-2.6 percent), Indonesia (-0.7 percent), Malaysia (-0.5 percent), and Vietnam (4.5 percent).
“Following the deep contraction last year, a base effect will also contribute to increased growth in 2021, while the national election is projected to boost economic activity in 2022,” Chua said.
Meanwhile, Chua said World Bank growth projection assumed that COVID-19 vaccination rollout will accelerate in the second half of 2021 due to expected arrival of more vaccine supplies.
“The prospect hinges on the effective pandemic containment, mass vaccination, and further loosening of mobility restrictions, which will result in the return of domestic activity. An improving external environment will also lend a boost,” Chua said.
In 2022, World Bank expects the country’s GDP will accelerate by 5.9 percent, before hitting a 6.0 percent expansion rate the following year.
“The growth trajectory is positive over the forecast horizon and is expected to close in on the potential growth of 5.7 percent over 2020-2029,” Chua saud.
“It anchors on the global recovery, including with key trading partners, which will translate into higher export demand and better prospect of remittances,” he added.