PHILIPPINE ECONOMIC

OUTLOOK 2020/21
WBF ROUNDTABLE ON-LINE
04 MAY 2020
 Economic impact of COVID-19 is due to
“aversion behavior”
 Government banning most activities – travel, gatherings, mall
operations, etc.
 Firms taking measures – temporary shutdowns, restructured work
 People forced to stay at home to avoid catching the virus

Behavior affects both supply and demand sides, so monetary

loosening (lowering interest rates, etc.) and cash subsidies not
enough to stimulate spending to address the impact. More fiscal
spending is needed.

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 Almost all sectors are affected at varying degrees as the
lockdown slows production and delivery of goods
 Travel and tourism worst hit
 Tourism industry 13% of GDP – it includes hotels and
restaurants, transport, shops, recreation, etc.
 Decline in tourism will shave up to 1.3%-points off GDP
 NEDA estimates 60K+ job losses in travel & tourism industries,
as 10-12% of their 540K workers permanently lose their jobs
 Airlines will incur heavy losses, some close to, even go bankrupt

 Service industries generally vulnerable, but gov’t services,

supermarkets, public markets, drug stores, finance and IT services
relatively less affected than other industries
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 Sectors affected…
 Industrial sector dragged down by:
 Supply chain disruptions – temporary closure of factories in
China & elsewhere; tighter port regulations; cargo checkpoints
 Postponement/cancellation of expansion plans
 Weak demand for non-essential products – clothing,
appliances, etc.
 Decline in export demand as major buyers experience
recession, prioritize protecting lives over boosting production
 Food, health and personal hygiene products; agricultural
commodities; medicines see growth

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 Government spending at least P400B under
emergency measure vs. COVID-19 (RA 11469)
 P205B emergency support for the poor: P5,000-8,000/month for 2
months for 18M families – but distribution slow
 P51B subsidy for 3.4M owners and workers of registered SMSEs
 P59B for health insurance of COVID-19 patients, risk allowance and
hazard pay of frontline health workers in public hospitals, PPEs and
other essential supplies for front liners, increased testing, higher bed
capacity of health care system
 P36B LGU assistance to vulnerable sectors

Another P300B in non-budgetary support – loan programs, tax breaks, etc.

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 Government spending…
 With below-target tax collections due to decline in economic
activity, the additional spending will push budget deficit from
target of 3.5% of GDP to 5-6% = public debt surges

But PH in a better position to incur more borrowings given its low

public debt ratio of 41.5% of GDP vs. 50% or higher in most other
Asia-Pacific countries and average of nearly 100% in the Euro area

 To maintain fiscal stability, BBB infrastructure program will

probably see some realignment, but will continue in the main

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 BSP acted aggressively to inject more funds into
the system and boost corporate borrowings
 A total of 125 bps reduction in policy rates from 3 cuts initiated
this year – reverse repurchase (BSP borrowing) rate now down to
an all-time low of 2.75% = signals a low interest rate regime
 Reserve requirement ratio (RRR) cut by 2%-points to 12% - will
release P220B in loanable funds for corporate borrowers

Hence, more lower cost funds will be available for businesses to

recover or for expansion plans or with higher production targets –
will companies respond, and banks lend to companies?

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 IMF World Economic Outlook - 1
2019 2020 2021
% Growth Rate:
World Output 2.9 −3.0 5.8
Advanced Economies 1.7 −6.1 4.5
USA 2.3 −5.9 4.7
Euro Area 1.2 −7.5 4.7
Japan 0.7 −5.2 3.0
Emerging & Developing Asia 5.5 1.0 8.5
China 6.1 1.2 9.2
India 4.2 1.9 7.4
ASEAN-5 4.8 −0.6 7.8

2020 will be worse than 2008-2009 crisis, but will bounce back in 2021
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 IMF World Economic Outlook - 2
2019 2020 2021
% Growth Rate:
World Trade in Goods & 0.9 −11.0 8.4
Services
Oil Prices – Simple Average, 3 −10.2 −42.0 6.3
Oil Markets
Non-Oil Commodity Prices – 0.8 −1.1 −0.6
Average

2021 Bounce-back Assumes:

 Pandemic fades in 2nd ½ 2020 and containment efforts gradually
unwound
 Fiscal, monetary and financial market measures are carried out to
support affected households and businesses
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 Prognosis now on PH Economy: 2020-21
 A total write-off for 2020 – addressing COVID-19 has taken precedence
over growing the economy – worst since 1985 PH financial crisis
 Growth occurs in 1Q as lockdown imposed at the tail-end of the
quarter, but 2Q will be a disaster. Only gradual, minimal pick-up in 2nd ½
as ECQ becomes GCQ: many SMEs still at convalescent stage while
others at ICU if not already DOA
 Increase in poverty incidence – total job losses projected by NEDA at
1.8M; DOLE says it’s already 2M+ although some are temporary
unemployment – further weakens local demand
 Depressed exports, tourism, OFW remittances
 BBB will be revived, but maybe more PPP = higher gov’t debt
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 Prognosis now on PH Economy… - 2
 Following global expectations, i.e., IMF Outlook, etc., there will be a
rebound in 2021
 A large part of the bounce-back due to low base in 2020, monetary
loosening and assistance to businesses enabling some firms to buy time
till market situation improves next year
 Government finances not as badly affected as other countries by
emergency borrowings in 2020, so BBB program resumes in 2H, picks
up in 2021
 Exports recover with world economic recovery
 2021 performance assumes world/PH is over the COVID hump,
confidence is restored, and businesses have shaken off impact of the
lockdown on their operations – but the risk it won’t is there
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 PH Economic Outlook (% Growth Rate)
2019 2020 2021
Actual Likely Range

GDP 5.9 0.0 ─1 to 2 6 to 8

Household Consumption 5.8 1.5 ─1 to 2 6 to 7
Government Current Expenses 10.5 6.4 6 to 7 6 to 8
Fixed Investment 1.5 ─11.7 ─12 to ─10 8 to 12
Export, Goods & Services 3.2 0.2 ─1.5 to 2 7.8 to 10
Import, Goods & Services 2.1 1.5 0 to 3 7.5 to 10
Agriculture 1.5 1.7 1 to 3 2 to 3
Industry 4.9 ─0.3 ─1 to 2 6 to 8
Services 7.1 0.0 ─1.5 to 1.5 6.8 to 8.8

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 Cost of Business Outlook: Annual Averages
2019 2020 2021
Actual Likely Range

Exchange Rate (P:$) 51.8 51.0 50 - 52 52 – 53

Inflation (%) 2.5 3.0 2–4 2–3
Bank Lending Rate (%) 7.1 6.0 5.5 – 6.5 6–7

 Minimal international trade and finance activity will stabilize P:$ rate in 2020;
modest depreciation as external transactions pick up in 2021
 Inflation up in 2020 with BSP pumping more cheap money into the system;
stabilizing in 2021. WBF’s 2-year forecast within BSP’s target range
 Interest rates track the adjustment in policy rates to all-time low in 2020; up
slightly in 2021 given the drastic dive in interest rates in 2020 and as new normal
economic activity resumes
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 Post-lockdown scenario: New Normal
Until cure becomes available (for PH maybe 2022?)
 Social distancing, hygiene practices and mass testing continue
 Big events and gatherings not allowed
 Limited resumption of economic activity
Beyond the COVID pandemic
 Work-from-home and other flexible office arrangements, ↑ on-
line meetings sustained = smaller office space, logistical needs ↓
 More digitally-connected society ↑; on-line transactions
accelerated; IT innovations, AI, robotics, industry 4.0 ↑; work
increasingly IT-driven, less workers needed for factories, services
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 …New Normal - 2
 Government planning will include policies and programs for
reduction of vulnerability vs. pandemic attacks
 Businesses will adopt pandemic-ready components in their
business continuity plans (BCPs)
 New investment opportunities – biomedical research, production
of protective equipment, redesign of health care facilities
 National ID system implemented
 Policies in place for improved and speedier access to medical
breakthroughs vs. new infectious diseases

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