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Philippine GDP Growth To Slide In 2020 Due To COVID-19 But Strong Rebound Expected in 2021
The Philippines’ economic growth will slow significantly this year before a strong rebound in 2021, with expansionary fiscal and monetary policies partly offsetting slower domestic demand and disruptions in tourism, trade, and manufacturing, according to a new Asian Development Bank (ADB) report released today.
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In its annual flagship economic publication, Asian Development Outlook (ADO) 2020, ADB projects the Philippines’ gross domestic product (GDP) to grow at two percent in 2020 following an “enhanced community quarantine” imposed by the government in March to stop the spread of the novel coronavirus disease (COVID-19) in the country. But ADB expects a strong recovery to 6.5 percent GDP growth in 2021, assuming that COVID-19 infections in the country are curbed by June this year.
“This unprecedented and extraordinary public health emergency brought about by the COVID-19 pandemic will substantially slow down economic growth this year, with most of the contraction in the economy occurring in the second quarter. We are anticipating a bounce back starting in the second half of this year, supported by the government’s stimulus spending and easier monetary policies,” said ADB Country Director for the Philippines Kelly Bird.
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Mr. Bird added: “ADB has been working closely with the Philippine government in its fight to ease the impact of the COVID-19 pandemic on Filipinos. We have provided two grants totalling $8 million to assist the government and we are now in advanced stages of preparing a larger and comprehensive assistance to help alleviate the impacts of the pandemic on communities’ well-being and support fiscal stimulus.”
On 14 March, ADB approved a $3 million grant to help the government deliver much-needed emergency medical supplies and equipment, including a new laboratory to enhance the country’s capacity to conduct more COVID-19 tests. This week, ADB launched a $5 million project to provide critical food supplies for poor families in Metro Manila.
Sustained public investment—especially in priority projects under the government’s “Build, Build, Build” (BBB) infrastructure development program—and a rebound in private consumption will drive economic growth in 2021, the report says. The economy will also benefit from the government’s large-scale fiscal spending to boost the delivery of relief measures to vulnerable sectors affected by the pandemic.
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Developing Asia Growth To Fall In 2020 On COVID-19 Impact
Regional economic growth in developing Asia will decline sharply in 2020 due to the effects of the novel coronavirus (COVID-19) pandemic, before recovering in 2021, according to the Asian Development Outlook (ADO) 2020, the Asian Development Bank’s (ADB) annual flagship economic publication.
The report forecasts regional growth of 2.2 percent in 2020, a downward revision of 3.3 percentage points relative to the 5.5 percent ADB had forecast in September 2019. Growth is expected to rebound to 6.2 percent in 2021, assuming that the outbreak ends and activity normalises. Excluding the newly industrialised economies of Hong Kong, China; the Republic of Korea; Singapore; and Taipei,China, developing Asia is forecast to grow 2.4 percent this year, compared to 5.7 percent in 2019, before rebounding to 6.7 percent next year.
“The evolution of the global pandemic—and thus the outlook for the global and regional economy—is highly uncertain. Growth could turn out lower, and the recovery slower, than we are currently forecasting. For this reason, strong and coordinated efforts are needed to contain the COVID-19 pandemic and minimise its economic impact, especially on the most vulnerable,” said ADB Chief Economist Yasuyuki Sawada.
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In the People’s Republic of China (PRC), a sharp contraction in industry, services, retail sales, and investment in the first quarter due to the COVID-19 outbreak will pull growth down to 2.3 percent this year. Growth will rebound to an above normal 7.3 percent in 2021 before reverting back to normal growth. In India, measures to contain the spread of the virus and a weaker global environment this year will offset the benefits from recent tax cuts and financial sector reforms. Growth in India is forecast to slow to 4.0 percent in fiscal year (FY) 2020 before strengthening to 6.2 percent in FY2021.
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Underpinning much of the weakness across Asia is a deteriorating external environment, with growth stagnating or contracting in the major industrial economies of the United States, Euro area, and Japan. Some commodity and oil exporters, such as those in Central Asia, will be hit by a collapse in commodity prices. Brent oil prices are expected to average $35 per barrel this year, down from $64 in 2019.
All of developing Asia’s subregions will see growth weaken this year because of weak global demand, and in some economies because of domestic outbreaks and containment policies. Subregions that are more economically open like East and Southeast Asia, or tourism-dependent like the Pacific, will be hard hit. Economic activity in the Pacific subregion is expected to contract by 0.3 percent in 2020 before recovering to 2.7 percent in 2021.
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The global cost of the pandemic could range from $2.0 trillion to $4.1 trillion, equivalent to a loss of between 2.3 percent to 4.8 percent of global gross domestic product. These estimates, which update earlier ADB research released on 6 March, reflect the now-global nature of the pandemic, the extensive use of containment policies and travel bans worldwide, and data on how the outbreak affected activity in the PRC.
It should be noted that the estimate does not take into account such factors as supply disruptions, interrupted remittances, urgent health care costs, and potential financial disruptions, as well as the long-term effects on education and the economy.
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Vietnam’s Economy To Remain One Of The Fastest Growing In Asia Despite Sharp Slowdown Due to COVID-19
Vietnam’s economic growth rate is expected to slow sharply in 2020, to 4.8 percent, from the initial supply shock to economic activity from the outbreak of the novel coronavirus (COVID-19) and the subsequent and ongoing drop in demand from Vietnam’s principal trade and investment partners, according to a report by Asian Development Bank (ADB).
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Economic growth decelerated to 3.8 percent in the first quarter of 2020, from 6.8 percent in the corresponding period in 2019. Travel and other restrictions imposed by the government to slow the spread of the virus led to lower domestic consumption. Manufacturing managed to weather the headwinds early on but the inventory of inputs, including those part of global value chains, are being depleted. Growth in agriculture stagnated because of lower demand for agricultural exports and severe salinity intrusion in the Mekong Delta. Growth in services, the sector hardest hit by the pandemic, was halved to 3.2 percent in the first quarter of 2020, down from 6.5 percent in the corresponding period in 2019.
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To support economic activity, in early March the government unveiled a $10.8 billion (0.4 percent of gross domestic product) credit relief package of debt restructuring and lowered interest rates and fees. The government also launched a fiscal package worth $1.3 billion that reduces taxes and fees for affected firms and defers tax payment, and the fiscal support is expected to rise. The central bank also cut policy rates by 0.5 percent to 1.0 percent, lowered interest rate caps on dong deposits of less than 6 months and on short-term dong lending to prioritised sectors.
The economy’s fundamentals remain resilient, according to ADB’s flagship annual economic publication, the Asian Development Outlook (ADO) 2020. If the pandemic is contained within the first half of 2020, growth should rebound to 6.8 percent in 2021—ADB’s pre-COVID-19 forecast for Viet Nam in 2020—and remain strong over the medium and long-term.
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“Despite the deceleration in economic activity and the downside risks posed by the COVID-19 pandemic, Viet Nam’s economic growth is projected to remain one of the highest in Southeast Asia,” said ADB Country Director for Viet Nam Eric Sidgwick.
Drivers of economic growth—a growing middle class and a dynamic private sector—remain robust. The country’s business environment continues to improve. Public spending to combat the impact of the pandemic, which rose significantly in January and February, will likely be raised further. The large number of bilateral and multilateral trade agreements Viet Nam participates in, which promise improved market access, will help the country’s economic rebound. Viet Nam would also benefit from the containment of the COVID-19 pandemic and eventual return of economic growth in the People’s Republic of China, which would help revive the global value chains.
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Light In Thailand’s Economy Despite Coronavirus Outbreak
The recent outbreak of the novel coronavirus, or COVID-19 is threatening the global economy outlook. Thailand’s finance ministry has recently cut its 2020 economic growth forecast to 2.8 percent from 3.3 percent projected three months ago, owing to weaker exports due to ongoing US-China trade tensions and fall in tourism numbers due to the spread of the virus.
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Despite this gloomy outlook, Kasikorn Research Center (K-Research) predicts that the impact of the virus on Thailand’s GDP will be moderate as the country is not as reliant on China’s economy as other economies like Vietnam or Singapore. The novel coronavirus could lower Thailand’s nominal GDP by 0.09-0.13 percent if the outbreak lasts longer than three months but less than six months, according to K-Research.
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In light of this, the government has taken several initiatives and measures to alleviate the impact of the virus, according to Fitch Solutions. This includes plans to introduce tax cuts and subsidies for the tourism sector and supporting domestic consumption and travel by extending the Taste-Shop-Spend programme. Moreover, kick-starting work on the delayed high-speed rail link, which is part of the Eastern Economic Corridor initiative, could spur some construction and investment activity in the region.
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Another encouraging sign is the movement of productions out of China to Southeast Asia countries such as Thailand due to the trade war and the virus outbreak. Google and Microsoft are accelerating efforts to shift production of their new devices away from manufacturing plants in China to Vietnam and Thailand. Toyota Boshoku Corporation are also considering moving production of auto seat covers to Japan or Thailand.
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Indonesia To Launch Foreign Investor Focused Stimulus Package
JAKARTA, INDONESIA: Indonesia is looking to launch an economic stimulus package that will promote the rupiah and thus, lead to domestic growth. This announcement comes ahead of the 2019 presidential election and is an acknowledgement of the country’s need for economic development. Opposition leader Prabowo Subianto has also announced that he will reduce corporate and personal income taxes in order to attract more investments if he wins the upcoming elections.
The impending stimulus package announced by the government include tax cuts from 2019 onwards for exporters of commodities in the mining, plantation, forestry and fishery sectors who are able to retain their export revenues in the domestic banking system. It will also include a tax holiday for two industrial sectors – agriculture-based manufacturing and digital industry – and will encompass a relaxation of the country’s Negative Investment List for some priority sectors.
Finance Minister Sri Mulyani has commented that a reduction of income tax will apply to the interest of time-deposits both in local and foreign currencies deriving from export revenues.
However, exporters who do not keep their export earnings domestically may be barred from moving their goods overseas as this would lead to capital outflows and a depreciation of the local currency as witnessed in the 1998 Asian Financial Crisis. A scenario that President Joko “Jokowi” Widodo has reaffirmed to 40 local exporters in July that the country is looking to avoid.
Mr. Satria Sambijantoro, an economist at Bahana Securities, has said that by retaining export revenues within the country, foreign exchange reserves can increase and this will prevent capital outflows from Indonesia in the future. With the change induced by the new stimulus package, foreign ownership in 54 business sectors, including the steel, chemical and petrochemical industries can now be increased to 100 percent, which is a drastic increase from the present 30 to 67 percent ownership allowed. This reflects the 2015 policies that were made to facilitate foreign investments and complements the last stimulus package that was introduced in August last year, which had an aim of increasing foreign investment. Regarding this, Coordinating Economic Minister Darmin Nasution has said, “We cannot address current account [deficit] issue[s] only. That’s important, but not enough. We must formulate policies to give investors confidence and allow capital growth.”
Although, the country is still lagging behind President Joko’s 7 percent growth target, the central bank has projected that the economy will grow by 5.1 percent this year, compared to last year’s 5.07 percent. This follows the government projection in August that the country’s economic growth will be 5.18 percent this year. Currently, Indonesia has been struggling to stabilise its fluctuating currency as well as the loss of confidence amongst investors. Centre of Reform on Economics Indonesia Executive Director, Mohammad Faisal, has said that with the United States intensifying efforts to boost its own economy, including adopting a highly domestically centred monetary stance, capital has been diverted away from emerging economies like Indonesia. He has further commented that, “All emerging markets are affected by shocks from the US, but our currency depreciation is among the deepest.”
Despite an increase in the value of the rupiah since early November, analysts have warned that risks remain on the horizon, especially for imports that traditionally spike during the year-end holidays as depreciations might contribute to a higher current account deficit. A trend that was observed in October when the Statistics Indonesia posted that deficit figures had reached US$1.82 billion which was the country’s second highest deficit figures in 2018 and have led to a weakening of the rupiah.
Last week, the Bank of Indonesia (BI) raised its benchmark rate by 25 basis points for the sixth time this year, to 6 percent. This is aimed at protecting the value of the rupiah in anticipation of a potential fourth hike this year in US rate, which will likely occur in December. BI Governor, Perry Warjiyo, has argued that with interest rate increases, along with instruments to control imports, the current account deficit can be narrowed to 2.5 percent of GDP next year. Although this year, the central bank estimates the gap will remain below 3 percent.
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