ADB downgrades forecast for Philippine economy in 2021

Manila-based multilateral lender Asian Development Bank (ADB) downgraded its economic growth forecast for the Philippines in 2021 amid the lingering uncertainties on how the COVID-19 pandemic will unfold both domestically and globally.

On Tuesday, the ADB released its flagship economic publication, Asian Development Outlook 2021, wherein it projects the Philippine economy to grow by 4.5% this year — a downgrade from its earlier projection of 6.5% in its Asian Development Outlook update released in December 2020.

The revised growth forecast falls below the Duterte economic managers’ outlook of 6.5% to 7.5% for 2021.

Socioeconomic Planning Secretary Karl Kendrick Chua has admitted that economic growth this year may be weaker than the government’s estimates due to the continued imposition of community quarantines as new COVID-19 cases continue to rise.

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said that the Development Budget Coordination Committee (DBCC) will likely lower its gross domestic product (GDP) target to 6.0% to 7.0%.

“The recovery in the Philippines is expected to be fragile. Uncertainties over the course of COVID-19 continue to weigh on household and business sentiment,” the ADB said in its latest report.

The lender noted that rising infections led to the reimposition of strict community quarantine in late March for two weeks in Metro Manila and some neighboring provinces.

Mobility restrictions are being gradually lifted, it said.

The NCR Plus bubble—Metro Manila Cavite, Laguna, Rizal, and Bulacan—was placed under the modified enhanced community quarantine (MECQ) from April 12 until April 30.

This is one notch looser than the enhanced community quarantine (ECQ) which was imposed in the bubble starting March 29. It was set to last only until April 4, but was extended for another week until April 11.

At a virtual press briefing, ADB Philippines country director Kelly Bird said that while the bank’s growth is at the lower end of economists’ estimates, “there are upsides to this projection.”

Bird said that the ADB’s outlook assumes a modest fiscal expansion, especially through infrastructure spending and social assistance, COVID-19 vaccination advancing in the second half, and a global economic recovery.

He noted that while the ADB downgraded its forecast for the Philippines to 4.5%, it is only a “floor” meaning that there is still room for further growth this year.

“The reason why we downgraded is because of the reimposition of enhanced community quarantine and that private investment will be subdued this year,” Bird said.

Nonetheless, the ADB official said that substantial progress in the country’s vaccination rollout will help restore consumer and business confidence, “though uncertainties over how the pandemic will unfold globally and domestically can pose risks to growth prospects.”

“Priority should be given to addressing the scarring effects of the pandemic on private sector employment. Programs supporting workers and firms impacted by labor market adjustments and reforms to boost productivity growth and investment will help counter the negative effects of the pandemic on employment over the medium term,” Bird said.

The government’s expansionary fiscal program and accommodative monetary policy will put the economy on a firm recovery path by the second half of 2021, he said.

The ADB report noted that government plans to strengthen labor market programs and assist in the recovery of sectors badly affected by the pandemic, including agriculture and tourism, will further support a pickup in the economy.

The ADB report took note that uncertain course of the COVID-19 pandemic and the possibility of more resilient coronavirus variants could hamper the recovery and weigh on confidence globally.

“Domestically, the vaccine rollout may suffer supply delays as wealthy nations have stockpiled vaccines and community quarantines could be prolonged to curb the spread of COVID-19,” the ADB said.

“Another risk is the possible disruption to government programs from the implementation in 2022 of a Supreme Court ruling on higher internal revenue allotments to local governments units, the so-called Mandanas ruling,” it added.

The Supreme Court ruling is seen to devolve some functions of the national government, including local infrastructure projects, such as school buildings and social protection programs.

Bird said that the concern is that transitioning these functions may temporarily disrupt the implementation of public programs.

Transition plans being prepared by the government will be crucial to facilitate the devolution and delineation of functions, he said.

The Philippines’ COVID-19 vaccine rollout may also suffer from global supply shortages in the short term, and local community quarantines could be extended to curb the spread of COVID-19, according to the ADB.

“Wealthy nations have already stockpiled vaccines which could create more delays in vaccine programs affecting the Philippines and other developing countries,” Bird said.

He said that the ADB’s forecast has already factored in a “modest rollout” of the vaccination plan, achieving the target of 60 million to 70 million Filipinos inoculated by the end of the year.—AOL, GMA News