MANILA – Deeper contraction in the second quarter of 2020 made the International Monetary Fund (IMF) slash its growth forecast for the Philippines this year to -8.3 percent but it hiked its 2021 forecast to 7.4 percent.
The lender’s latest growth projection for the country this year is a decline from its -3.6 percent projection earlier, while the 2021 forecast is an improvement from 6.8 percent.
In a reply to e-mailed questions from PNA, IMF Country Representative to the Philippines Yongzheng Yang said the change in the growth projection for this year was due to the “larger-than-expected downturn in Q2 (second quarter) and a more gradual resolution of the pandemic as witnessed over the past months, with prolonged social distancing.”
Growth, as measured by gross domestic product (GDP), registered a deeper contraction in the second quarter at 16.5 percent from the downwardly revised -0.7 percent in the previous three months.
The second-quarter output resulted in the change in economic managers’ growth target for this year from between -2.0 to -3.4 percent to -5.5 percent.
Next year, economic managers target a recovery of between 6.5 to 7.5 percent, down from 8 to 9-percent target earlier.
The 2022 target is also between 6.5-7.5 percent.
Yang said: “despite a somewhat softer global contraction expected in the October WEO (World Economic Outlook), weak public confidence and low remittances in the Philippines as a result of the pandemic are expected to continue weighing on private investment and consumption.”
“The negative impacts of Covid‑19 are expected to be only partially offset by policy support,” he said.
Yang attributed the projected recovery next year to base effects or the contraction this year, and the “expected rebound in pent-up demand from the relaxation of quarantine measures and continued effects of the policy easing in 2020.”
“Nonetheless, significant scarring effects (e.g., hysteresis, bankruptcies) are expected and it will take a couple of years before real GDP to return to the pre-pandemic (2019) level,” he added.
Yang said the impact of the pandemic is seen to result in lower levels of potential output and higher structural unemployment in the medium term “but real GDP growth is expected to converge back to potential, of 6.5 percent by 2025.”
Meanwhile, Yang said IMF executives are closely watching developments in Congress vis-à-vis its impact on the proposed PHP4.5-billion national budget for next year.
“We hope the budget will be passed timely as predictable fiscal policies are important for business confidence and consumer sentiment, and hence for economic recovery,” he added. (PNA)
