IMF becomes more pessimistic about PH’s economy this year

The Philippine economy is forecast to contract 8.3 percent this year, which is expected to be the largest annual drop in gross domestic product (GDP) 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 Tuesday, the Washington-based multilateral lender further lowered its GDP forecast for the Philippines from its previous projection of a 3.6 percent contraction in June.

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

In an email, IMF Resident Representative to the Philippines Yongzheng Yang said that the worst GDP expectation for 2020 “mainly reflects a greater-than-expected slowdown in the second quarter and a more gradual resolution of the pandemic as seen in the last few months, with social distancing. “

GDP fell a record 16.5 percent year-on-year during the April-June period, at the height of the region’s longest and most rigorous COVID-19 shutdown, eliminating millions of jobs and risking reversing gains. in reducing poverty. in recent years.

“Weak public confidence and low remittances as a result of the pandemic are expected to continue to weigh 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 that “the risk of a decrease in payments and transfers from migrant workers to their home countries is very significant, particularly for countries like Bangladesh, Egypt, Guatemala, Pakistan, the Philippines and those of sub-Saharan Africa in general. “

The 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 keeping health and safety standards in place, green shoots of economic recovery have been evident, Yang said, so it is projected that GDP will rebound to 7.4 percent growth next year. a better forecast than the previous 6.8 percent expansion seen by the IMF for 2021.

The IMF also expects the unemployment rate to fall to 7.4 percent next year, although still above the pre-pandemic 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 7.4 percent in 2021, helped by, in addition to the base effect, an expected rebound in suppressed demand due to the relaxation of quarantine measures and the continuing effects of easing policy. in 2020, ”Yang said.

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

When asked how the Philippines could recover from the pandemic-induced recession, while resuming more jobs and minimizing the number of Filipinos returning to poverty, Yang responded: “It is important to maintain accommodative macroeconomic policies during the recovery phase and continue to pursue structural reforms to create more jobs, enable a more conducive business environment and provide 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 drive for infrastructure in emerging growth areas such as digitization, healthcare and climate change. Short-term investment should be prioritized for projects that generate more immediate jobs. Furthermore, social protection programs must be strengthened as current temporary income support measures are phased out, ”Yang said. INQ

Read next

Don’t miss the latest news and information.

For comments, complaints or inquiries, please contact us.