Recession looming

PHILIPPINES - In Brief 05 Apr 2020 by Romeo Bernardo

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The coronavirus is indeed spreading much faster than analysts can update GDP growth forecasts. Our last update was only a month ago, before the World Health Organization declared a pandemic. That number, a 50bp downgrade to 5.7%, lower than other analysts’ forecasts at the time, is clearly now overly rosy. These days, even multilaterals are slashing forecasts to low single-digit (3% for the World Bank, 2% for ADB), with the added caveat of significant downside risks from covid-19.By now, most accept that the world has entered a recession. The unknowns for forecasters are the depth and length of the recession and the shape of recovery, the so-called V (sharp bounce back), U (slow recovery), or L (prolonged downturn). These unknowns depend on the interplay of two sets of policy actions, one dealing with how successful governments will be in containing the virus, the other on how successful governments will be in managing the economic fallout from the crisis, including from containment measures taken (i.e., lockdowns).How deep?Back in 2009 when global growth shrank, the Philippines managed to avoid a recession. This time around, we think it won’t be as lucky. Indeed, one would have to go back 20 years to find a negative number for GDP growth. That was -0.6% in 1998 in the aftermath of the Asian Financial Crisis. Then, the only source of domestic demand was private consumption, about 70% of GDP today. With the current lockdown or enhanced community quarantine (ECQ), millions of households are now relying on government and donor subsidies for basic needs while the rest have had to cut spending down to essentials. Business activities have likewise screeched to a halt given g...