Philippine economy to suffer first annual contraction in over two decades: central bank

A dog walks around a deserted public market following the lockdown imposed to contain the coronavirus disease (COVID-19) in Manila, Philippines, April 24, 2020. REUTERS/Eloisa Lopez

MANILA (Reuters) - The coronavirus outbreak will likely send the Philippine economy into its first annual contraction in more than two decades this year, before it pulls back up for a U-shaped recovery in 2021, the central bank governor said on Saturday.

Key cities in the Philippines, among the fastest growing economies in Asia during the pre-pandemic period, are under strict quarantine measures since mid-March.

Philippine gross domestic product would likely shrink by 0.2% in 2020 before bouncing back to about 7.7% as policy support measures gain traction, central bank Governor Benjamin Diokno said in a statement.

That would mark a sharp reversal from the government’s initial annual growth target of between 6.5% and 7.5% for 2020 to 2022.

The economic recovery would follow a U-shaped path in 2021, following a slowdown in the first quarter and contractions in the next two quarters of this year, Diokno said. “The strong recovery is based on the assumption that the pandemic is contained in the second half of 2020.”

Philippines President Rodrigo Duterte on Friday extended a strict lockdown in the capital Manila and key cities until May 15 to try to contain the spread of the coronavirus, which has so far killed 477 people and infected 7,192 in the country.

Given the collapse of world crude prices, and the coronavirus’ impact on global and domestic growth prospects, inflation would average 2.0% this year, down from the previous 2.2% forecast, the central bank said.

Inflation is then expected to accelerate to an average of 2.45% for 2021, slightly up from the previous forecast of 2.4%, as domestic activity picks up and more cash flows through the economy, it added.

Reporting by Neil Jerome Morales; Editing by Muralikumar Anantharaman & Shri Navaratnam