PH economy to shrink by 3.8% with wider slump in spending, investments – ADB

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(FILE PHOTO)

Metro Manila (CNN Philippines, June 18) – The Asian Development Bank said the Philippine economy will likely shrink by 3.8 percent this year, wider than government estimates, as the slump in consumption and investments drag further amid the pandemic.

The regional lender said Thursday it has revised the 2 percent growth forecast it made in April to a contraction for 2020, taking into account the longer than expected decline in economic activity amid the COVID-19 crisis.

"The forecast for 2020 is revised down to 3.8% contraction because household consumption and investment have slowed more than expected," according to ADB's Asian Development Outlook Supplement report. "The contraction in the global economy will continue to drag external trade, tourism and remittances."

The ADB's latest forecast is worse than the government's expected slump of between 2-3.4 percent, which abandoned pre-crisis projections of a 6.5-7.5 percent expansion for the year. In 2019, the Philippines grew by 6 percent.

Last week, the World Bank pegged the local recession at 1.9 percent.

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The economy recorded its first contraction since 1998 in the first quarter, shrinking by 0.2 percent after reeling from lockdown and travel restrictions which took effect mid-March. Market watchers are almost certain that the second quarter figures will be worse, given that it includes a full month under lockdown before select industries were gradually opened and movement limits were partially eased nationwide.

The pandemic saw the country banning international and domestic travel, cutting off tourism, and the return of thousands of overseas Filipino workers who have been a steady source of cash for household spending.

Locally, there were 7.3 million Filipino adults without work in April – an all-time high – while some 13 million had jobs but were not at work, the Philippine Statistics Authority reported.

The situation is also dim for the rest of the region. ADB said Southeast Asia will contract by 2.7 percent, with the Philippines in the middle of the pack in terms of prospects. Thailand and Singapore will experience the biggest crash at 6.5 percent and 6 percent, respectively. Vietnam, Myanmar, and Brunei will manage to expand this year. These three states tallied relatively low COVID-19 infections.

"Most countries in the subregion have started to relax restrictions, but weak consumer confidence may hinder economic recovery," the lender added, noting that external trade will remain muted for the rest of the year as the global economy contracts.

RELATED: Metro Manila stays under GCQ, Cebu City reverts to strictest ECQ

Across Asia, the island state of Fiji is seen to suffer the biggest collapse, with a projected 15 percent contraction as tourism crumbles. The Maldives, best known for its beaches, will also suffer an 11.3 percent fall, according to ADB estimates.

China, the original epicenter of the global COVID-19 outbreak, will muster a 1.8 percent growth, coming from a 6.1 percent expansion in 2019.

Throughout all of this, inflation is expected to remain under control due to depressed demand and lower oil prices.

The outlook is better for 2021, with ADB seeing a 6.5 percent growth rebound for the Philippines and 4.7 percent for Southeast Asia. Manila will enjoy a boost from public infrastructure spending, alongside the anticipated recovery in consumer and business confidence that will perk up consumption.

ADB has been providing loans and grants to the Philippines to support the fight against COVID-19, extending billions of pesos of aid since March.