Oxford Economics, a UK-based think tank, predicted a global depression in 2020, with the world gross domestic product declining anywhere from 2.8 percent to 8 percent as countries impose lockdowns to contain the spread of coronavirus disease 2019.
"The impact of coronavirus on the global economy has prompted recent revisions to our baseline forecast, which now envisages a 2.8% contraction in global GDP for 2020. We think the risks around our baseline forecast are now more balanced than previously. But such is the uncertainty over the outlook that we are continuing to update our downside simulations to show how, under plausible assumptions, the outlook could materially worsen," Oxford Economics said in a report.
"Our updated downside scenario assumes lockdowns become even more widespread and persist into Q3, and the subsequent recovery is slower. We estimate this would lead to global growth contracting by around 8 percent in 2020," it said.
"Our baseline assumes that lockdowns continue for 6 to 12 weeks, varying between countries, and that they affect most of the population. While this assumption seems appropriately conservative compared with China’s experience, we have learned in 2020 that circumstances can change quickly, emphasising the need for timely forecasts and scenarios. Therefore, using the Oxford Economics Global Economic Model and the same methodology as previously, we have simulated a downside scenario in which all countries impose severe lockdowns, these extend into Q3 [potentially due to a second wave of the virus], and domestic activity is even slower to come back than is proving the case in China, compounded by a weak global environment," it said.
It said the scale and speed of the downturn in its downside scenario is without parallel in the last 50 years of comparable data. "We estimate global GDP growth reaches a low of -12.5 percent y/y in the third quarter before steadily recovering in 2021. A return to 2019 levels of global output is not achieved until the start of 2022. The recovery in emerging markets is slower than advanced economies, reflecting their increased vulnerability to this shock," Oxford Economics said.
While multilateral banks were less pessimistic on their outlook, they were not ruling out a global recession. The World Bank said pandemic would take its toll on economies across East Asia and the Pacific. In its report titled “East Asia and Pacific in the Time of COVID-19”, the World Bank said economic growth in the Philippines woud slow to 3 percent in “a scenario of severe growth slowdown followed by a strong recovery.”
It said a “lower-case” scenario of a deeper contraction followed by a slugging recovery” would see the Philippine economy contract by 0.5 percent in 2020.
“Real GDP growth is projected to significantly decelerate from 5.9 percent in 2019 to 3.0 percent in 2020 due to the impact of the Covid-19 outbreak and the associated community quarantine. The quarantine restricts all nonessential movement of people and closed down businesses and government agencies in Luzon—which accounts for 70 percent of national GDP—until April 14,” the World Bank said.
It said the economy could contract in 2020 in case of a rapid surge in confirmed cases resulting in a prolonged community quarantine, lengthier disruptions to government and business activities, loss of incomes and a protracted weakening of the public health system.
The quarantine measures shut down schools and most government offices and private establishments in Metro Manila and the entire Luzon island, which accounts for over half of the country’s total population and generates more than two-thirds of the country’s overall GDP.
The World Bank said economic growth is expected to accelerate rapidly in 2021 to 2022 as global conditions improve and with more robust domestic activity bolstered by the public investment momentum and a boost from 2022 election-related spending.
The bank said the Philippines is among countries in the East Asia and Pacific region that should act now to counter the possibility of a global financial shock and recession associated with the spread of the disease.
For its part, the Asian Development Bank expects Philippine economic growth to slow down this year to 2 percent from the actual expansion of 5.9 percent in 2019, pulled down by the impact of coronavirus disease 2019.
It said in its Asian Development Outlook 2020 report, the economy was expected to rebound strongly by 6.5 percent next year, with expansionary fiscal and monetary policies partly offsetting slower domestic demand and disruptions in tourism, trade and manufacturing.
The government implemented a month-long enhanced community quarantine in Luzon that would last until April 12 to stop the spread of Covid-19.
ADB said a strong recovery of 6.5-percent growth would be possible in 2021, assuming the virus infections in the country would be 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,” ADB country director for the Philippines Kelly Bird said.
“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 Bird.
Moody's Investor Service, however, said the rapid and widening spread of the coronavirus outbreak, deteriorating global economic outlook, falling oil prices and financial market turmoil were creating a severe and extensive economic and financial shock.
"For the Philippines, we expect a sharp slowdown in growth this year, with real GDP growth decelerating to 2.5 percent in 2020, which incorporates the curtailment of domestic demand from the imposition of the 'enhanced community quarantine' on the entire northern island of Luzon," Moody's said.
It said the lower growth and substantial fiscal stimulus would contribute to a higher general government debt burden that was projected to rise to around 44 percent of GDP in the next few years.
"We expect the current account deficit to remain narrow and stable in 2020 as the negative impact on exports, tourism, remittances and other services receipts will be offset somewhat by lower oil prices and subdued import demand on account of slower economic growth," Moody's said.