COVID-19 to impact on Philippines growth — Capital Economics

MANILA, Philippines — Despite being relatively insulated from the effects of the coronavirus disease 2019, (COVID-19), the Philippines will likely see slower economic growth in the first quarter of the year primarily due to the virus’ impact on tourism, London-based think tank Capital Economics said.

In a new research brief titled “Assessing the impact so far,” the macroeconomy research firm said the Bangko Sentral ng PIlipinas (BSP) is expected to cut key rates further this year after inflation reached an eight-month high of 2.9 percent in January.

“The coronavirus outbreak will weigh on growth this quarter. The Philippines is more insulated than most in the region, but its tourism sector will be hit hard. Arrivals from China had been growing strongly before the virus,” the report said.

The BSP slashed its main policy rate to 3.75 percent early this month as a preemptive measure in response to external headwinds that include the global contagion.

“We think another cut is likely over the coming months,” Capital Economics said.

To curb the spread of the novel coronavirus into the country, the Philippines imposed early this month a ban on travellers coming from China and its special administrative regions Hong Kong and Macau.

A ban on travelers from a hard-hit South Korean province is now also in effect.

The domestic economy picked up by 6.4 percent in the fourth quarter of 2019 from a downwardly revised six percent in the third quarter of 2019.

Preliminary estimates of the National Economic and Development Authority (NEDA) made earlier this month showed that if the coronavirus contagion persists for one month at the current pace, 0.06 percentage point of the GDP will be impacted.

If the contagion extends up to five months from now, 0.3 percentage point of the GDP will be affected.

If the present level of contagion lingers on for 11 months, however, as much as 0.7 percent age point of the country’s economic output will be affected.

These estimates were arrived at assuming a 100 percent reduction on the number of tourists coming from China and a 10 percent reduction on the number of tourists coming from other countries.

A full reduction of inbound tourism from China shaves off a quarter of the P450 billion spending of foreign tourists in the country that makes up five percent of GDP.

NEDA officials have recognized that the travel and tourism industry will take a beating in the current environment, standing to lose P22.7 billion per month including domestic airline receipts.

Travel and tourism – both foreign and domestic – makes up 12.7 percent of the country’s gross domestic product (GDP).

China and South Korea, which are the worst hit by the contagion, are the two top sources of tourists to the country.