DESPITE the spike in infections from the Covid-19 omicron variant, the Philippines is poised to register the fastest growth in the Asean this year and the second highest growth in 2023, according to the World Bank.
Based on the World Bank’s Global Economic Prospects, the country’s projected economic growth rate of 5.9 percent this year is the fastest growth expected in the Asean, while the 5.7 percent expected next year will be second only to Vietnam’s 6.5 percent.
In December last year, the World Bank’s Philippine Economic Update titled Regaining Lost Ground, Revitalizing the Filipino Workforce stated that growth will be significantly lower than the prepandemic growth rate of over 6 percent. (Story here: https://businessmirror.com.ph/2021/12/07/wb-report-covid-scarring-cuts-phl-growth/)
“Growth is projected to be 5.9 percent in the Philippines in 2022, supported by sustained public investment and recovering household consumption, and then moderate to 5.7 percent in 2023,” the World Bank said.
However, the World Bank warned that the pandemic-induced inequality would be long-lasting and will prevent intergenerational socioeconomic mobility.
The World Bank said emerging market and developing economies, which include the Philippines, may have seen a 0.3 point increase in its Gini coefficient. The World Bank estimates that as of 2018, the country’s gini coefficient is at 42.3.
The Gini coefficient is a measure of inequality where zero represents perfect equality and 100 represents perfect inequality.
“That said, the magnitude of the increase induced by the pandemic is relatively small—comparable to an annual average decline in within-country income inequality in the preceding two decades in this EMDE [emerging market and developing economies] sample,” the World Bank said.
“The increase in within-country inequality reflected severe job and income losses among low-skilled workers, low-income households, informal workers, and women,” it added.
The inequality is also being affected by rising debt levels during the pandemic as well as the increase in commodity prices.
The World Bank said total debt levels increased by 30 percentage points of GDP to 263 percent of GDP in 2020. This represented the largest single-year increase in debt levels since 1970.
The Washington-based lender said the increase in debt was mainly driven by external and domestic loans secured by EMDEs. The bank also said more than half of low-income countries are already in debt distress or at high risk of debt distress.
Data released by the Bureau of the Treasury on Wednesday showed that in December 2021, the current debt stock dipped by P39.7 billion or 0.3 percent from P11.97 trillion as of end-October, mainly due to the net redemption of domestic securities and favorable foreign exchange rates. (Story: https://businessmirror.com.ph/2021/12/29/ng-debt-dips-to-p11-9-trillion-but-still-beyond-goal/)
Meanwhile, in terms of commodity prices, the World Bank said the increase was led by the high cost of energy and metals. This was driven by the recovery of global demand and, more recently, the surge in weather-related supply disruptions.
The World Bank said commodity prices regularly undergo booms and slumps, with the average cycle lasting 6 years. Over the past 50 years, booms were more pronounced than slumps with prices increasing 4 percent per month compared with an average decline of 1 percent during slumps.
“In historical comparison, the commodity price swings over 2020-21 have been exceptionally large. The collapse in energy prices in early 2020, and their subsequent recovery, were the steepest of any during global recessions since 1970,” the World Bank said.
In a statement, the World Bank said global growth is expected to decelerate markedly from 5.5 percent in 2021 to 4.1 percent in 2022 and 3.2 percent in 2023 as pent-up demand dissipates and as fiscal and monetary support is unwound across the world.
The rapid spread of the Omicron variant indicates that the pandemic will likely continue to disrupt economic activity in the near term. In addition, a notable deceleration in major economies—including the United States and China—will weigh on external demand in emerging and developing economies.
At a time when governments in many developing economies lack the policy space to support activity if needed, new Covid-19 outbreaks, persistent supply-chain bottlenecks and inflationary pressures, and elevated financial vulnerabilities in large swaths of the world could increase the risk of a hard landing.
“The world economy is simultaneously facing Covid-19, inflation, and policy uncertainty, with government spending and monetary policies in uncharted territory. Rising inequality and security challenges are particularly harmful for developing countries,” said World Bank Group President David Malpass. “Putting more countries on a favorable growth path requires concerted international action and a comprehensive set of national policy responses.”
Growth in advanced economies is expected to decline from 5 percent in 2021 to 3.8 percent in 2022 and 2.3 percent in 2023—a pace that, while moderating, will be sufficient to restore output and investment to their pre-pandemic trend in these economies.
In emerging and developing economies, however, growth is expected to drop from 6.3 percent in 2021 to 4.6 percent in 2022 and 4.4 percent in 2023. By 2023, all advanced economies will have achieved a full output recovery; yet output in emerging and developing economies will remain 4 percent below its prepandemic trend.
For many vulnerable economies, the setback is even larger: output of fragile and conflict-affected economies will be 7.5 percent below its pre-pandemic trend, and output of small island states will be 8.5 percent below.
Image credits: Nonie Reyes