ADB slashes 2021 growth forecast for PH

With greater uncertainty brought about by the prolonged COVID-19 pandemic, the Asian Development Bank (ADB) has slashed its growth forecast for the Philippines to 4.5 percent in 2021.

From its previous gross domestic product (GDP) growth forecast of 6.5 percent for this year, the Manila-based multilateral lender’s updated projection for its host-country was now below the government’s 6.5-7.5 percent target range, its flagship Asian Development Outlook (ADO) 2021 report released on Wednesday showed.

ADB country director for the Philippines Kelly Bird told a press conference that their latest forecast was a “floor,” which meant they expected the growth rate to be a minimum of 4.5 percent but it could be higher.

“The economy is on recovery [but] it’s not as fast as we expected it would last year” when the ADB made its previous growth forecast, Bird said. It did not help that the emergence of new COVID-19 variants stalled some inroads in containing the spread of the deadly coronavirus, which heightened uncertainties on both the local and global outlooks,” he added.

Delayed momentum

Bird said the updated growth estimate already took into consideration the reimposed tighter quarantine and the expected delayed momentum in reopening the economy in “National Capital Region (NCR) Plus,” which accounted for half of the Philippines’ GDP.

As such, he said the more stringent ongoing quarantine would likely impact on the first-half economic performance.

In a separate report, UK-based Pantheon Macroeconomics projected the second quarter to end the three straight quarters of growth amid the gradual easing of lockdown restrictions back then.

“A double-dip in the Philippines appears inevitable … The country suffered one of the deepest contractions in consumption last year, implying a strong bounce potential. But pent-up demand appears to be evaporating quickly. Crucially, the likely strong hit from the stubborn second outbreak implies that the recovery in spending may need to start from square one. We now expect the economy to shrink by about 2 percent quarter-on-quarter in the second quarter, following an estimated 1.6-percent gain in the first quarter,” Pantheon Macroeconomics senior Asia economist Miguel Chanco said.

With prolonged quarantine measures affecting jobs, Bird said poverty would likely “remain elevated” this year. Last year, the ADB projected the poverty rate to have reverted to the higher 20-percent level amid the pandemic-induced recession.

Also, the ADO 2021 report said the pandemic and slow economic recovery might leave the Philippines’ labor market in a phenomenon called “hysteresis,” wherein “the unemployment rate continues to rise even after the economy has started to grow again.”

Workforce issue

“Hysteresis can indicate a permanent change in the workforce from the loss of job skills making workers less employable even after a recession has ended. About one-third of the total workforce is in vulnerable employment, and this could swell with the observed shift from wage and salary employment to self-employment during the pandemic. This wiped out 1.7 million wage and salary jobs in private establishments and in the government in the 12 months to January 2021. In contrast, employment in the informal sector, mainly self-employed, rose by about 435,000,” the ADB said.

Bird noted that the recent lockdowns, though more localized, affected more formal employment than informal jobs.

He was nonetheless optimistic that an economic rebound could be faster if the Philippines could ramp-up mass vaccination to achieve herd immunity and resume consumer confidence, the global economy will recover faster, and the planned big-ticket infrastructure projects would come on-stream.

While the ADB sees headline inflation breaching the government’s 2-4 percent target band to average 4.1 percent this year, Bird said they were not expecting it to be a major problem.

In the meantime, the ADB has programmed to lend the Philippines a total of $3.9 billion for eight programs and projects this year to aid in recovery through support for infrastructure build-up, local economic development, as well as investment in people.