ADB SEES PHL ECONOMY SHRINKING THE MOST, AFTER THAILAND, IN ’20
THE Asian Development Bank (ADB) now expects the Philippine economy to post the second steepest economic contraction among Southeast Asian countries on the back of the slump in private consumption and investment and uncertainties about the global economic recovery. In its Asian Development Outlook 2020 Update, ADB said it now sees the economy posting a deeper contraction of 7.3 percent this year, lower than its previous forecast in June that the economy will shrink by 3.8 percent this year. The new forecast of ADB is also lower than the Philippine government’s own outlook that GDP will contract by 5.5 percent this year. “The growth projection for 2020 is downgraded after steep contraction in private consumption and investment drove a sharp recession in the first half of 2020,” the ADB said. Thailand is still expected to suffer the worst economic contraction among Southeast Asian countries. The ADB expects Thailand’s economy to shrink by 8 percent, worse than its previous projection of 6.5 percent contraction previously. However, ADB retained its 6.5-percent growth outlook for the Philippine economy next year as it expressed optimism that the outbreak would be contained, the economy would be further opened and more government stimulus measures would be implemented. Still, it also cautioned against the downside risks for next year, such as a slower-than-expected global recovery that could weigh heavily on trade, investment, and overseas Filipino worker remittances. “We believe the worst is now over and that the contraction in GDP bottomed out in May or June this year. The package of measures the government rolled out, such as income support to families, relief for small businesses, and support to agriculture in the second quarter, all helped the economy to bottom out. We expect the recovery to be slow and fragile for the rest of this year, and growth to accelerate in 2021 on the back of additional fiscal support and an accommodative monetary policy stance,” said ADB Country Director for the Philippines Kelly Bird.
Inflation outlook
ASIDE from downgrading its growth forecast for the country this year, ADB also revised upward its inflation outlook for the Philippines this year and next year as global oil prices stabilize. ADB now sees a slightly higher inflation rate of 2.4 percent this year, inching up from its previous projection of 2.2 percent. For 2021, it expects the country’s inflation rate to go up to 2.6 percent from 2.4 percent previously. Nonetheless, ADB’S revised inflation forecasts are still within the government’s target band of 2 to 4 percent. Given its inflation outlook on the country, ADB expects monetary policy to remain expansionary, adding that “further cuts to the reserve requirement ratio are likely to free up more funds for banks to lend.”