The coronavirus 2019 (Covid-19) pandemic will test the soundness of the economic fundamentals of the Asean+3 economies, including the Philippines, but the region is bound to emerge from the crisis stronger, according to the Asean+3 Macroeconomic Research Office (AMRO).

In an online briefing, AMRO chief economist Hoe Ee Khor said that in the short term, the Asean+3 economies will see gross domestic product (GDP) slow to 2 percent in 2020 and grow faster to 5.2 percent in 2021. This is as of the April 2020 estimates made by AMRO.

As of April, the Philippines is projected to post a growth of 4 percent to 5 percent this year and a 6.4-percent to 7-percent GDP growth in 2021. In March when AMRO was doing the report, the projection for the country’s growth was higher at 6.2 percent in 2020 and 6.6 percent next year.

“I think the second and third quarters [are] going to be tough. And we still don’t know how long and how severe this pandemic is gonna be but I think the expectations is things will get worse before it gets better. How much worse and how long it takes is open, [it] depends on what kind of measures that governments take and how strongly they stick with it,” Khor said.

In his presentation, Khor said the Philippines is expected to see a 2.6 percentage point to as much as 4.4-percentage-point reduction in its GDP growth in case of a global recession and severe global recession this year.

Khor said, however, that governments have the resources to undertake massive spending. He said governments should prioritize helping businesses and households by “keeping them alive” in these difficult times.

In his presentation on Tuesday, data showed majority of Asean+3 economies have sufficient foreign- exchange reserves at this time, which reserves averaging seven months to 10 months in the region.

Khor said the recommended level of foreign-exchange reserves is around 100 percent to 150 percent and Asean+3 countries, such as Korea, Indonesia and Malaysia, are within this range while the Philippines and Thailand have exceeded this range for the past three years.

“We will emerge out of this and I think we will emerge stronger. Because I think this crisis forced us to recognize that we are in this together and we need to support one another and we need to be prepared for the next big one [which] will be climate change and we need to get ready for that,” Khor said.

Khor said while AMRO is cautiously optimistic about the short and medium term outlook for regional growth, there were a few “bright spots” that would be crucial in the long term.

These bright spots include the fact that since the Asian Financial Crisis, Khor said the region has been prudent and created financial safety nets, as well as strengthened surveillance capacity.

Khor said these are important in ensuring that the region’s macroeconomic fundamentals remain sound and hold much promise in the long term.

Further, the pandemic is an opportunity in itself. Khor said the pandemic has fast-tracked the fourth industrial revolution and is providing a major boost to e-commerce and logistics growth.

Khor said these are crucial building blocks in the “economy of the future” and could help Asia to transition to “ShopperAsia” from “FactoryAsia.”

Some of the signs that the region is becoming a shopping hub is an increase in intra-regional trade in the region. Khor said the share of value-added exports increased to 40 percent in Asean+3 from 38 percent in 2010 and 35 percent in 2005.

AMRO attributes this growth to the expansion of the middle class. This means the region can become not only a global production network but also a global market place.

“The global tragedy of the Covid-19 pandemic reminds us of our collective destiny and challenges the region to demonstrate its resilience and commitment to come up with solutions that safeguard and strengthen our long-term interests. The capacity to rise to the challenge is not in doubt, and the will to shape our future together is strong,” Khor concluded.

To position the region strongly, policy-makers need to broaden and quicken their efforts in developing human capital, facilitating freer cross-border flow of skilled labor and professionals, and updating rules governing trade.

A fresh interpretation of “social safety net” is also necessary, particularly in view of the growing importance of the gig economy. It is crucial for regional governments to put in place stronger social safety nets in conjunction with efforts to enhance the regional financial safety net.

Source: Business Mirror

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