Forecasting in a time of radical uncertainty (3)

PHILIPPINES - In Brief 27 Mar 2020 by Romeo Bernardo

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What we know so far: Significant uncertainty exists as the virus continues to spread at immense cost to human lives. Infections continue to rise, health systems are struggling to cope and necessary lockdowns have been imposed in many developed and developing countries to slow the virus’s transmission. A covid-19 vaccine may still take several months. The outlook for the global economy is bleak. The IMF, typically more conservative, is projecting “a global downturn at least as bad as the 2008 financial crisis,” which means a recession or negative growth for 2020. The Philippines, with a lockdown covering a geographic area that accounts for over 70% of GDP[1] and with land, air and sea travel restricted, is in a state of national emergency. The impact on the economy is uncertain. Even with the assumption that the crisis is over by mid-year, the planning agency’s simulations reveal a wide range of possible outcomes, from a best-case GDP growth of 4.3% to a worst case of negative 0.6%[2]This compares with a start-of-year low-end growth target of 6.5%. Philippine monetary authorities have aggressively loosened policy aimed at ensuring ample liquidity in the financial system, keeping interest rates low, encouraging banks to extend forbearance to borrowers experiencing cashflow problems due to the lockdown and encouraging banks to lend more. They have also, after some prodding from counterparts in the finance department, agreed to lend directly to government which, considering the size and urgency of government’s requirements, is needed to avoid a spike in market interest rates. (See Table 1) Fiscal stimulus measures totaling about 1.2% of GDP have been announced, including a...