The Philippine economy is currently feeling the impact of the new coronavirus disease or COVID-19. Experts had hoped that the virus would have dissipated by the end of the first quarter but this is not what is happening. As of this writing, the number of cases changes significantly each day. The Philippines already has 636 cases, with 38 deaths while 26 has recovered. This is making a dent on the global economy and the Philippines will surely take a hit, experts said. J.P. Morgan’s latest report already sees emerging markets in Asia are under threat.
“The economic narrative on the COVID-19 outbreak in EM Asia revolves around two causal mechanisms: the impact of the fear factor on behavior, reflected in a decline in demand for travel-related services, hospitality, and discretionary consumption, and the supply-side impact of China’s containment measures on manufacturing production and regional supply chains,” J.P. Morgan said.
The global bank said these headwinds could abate late in the first quarter of the year or in the second quarter. “These headwinds are presumed to abate during late first quarter 2020/second quarter 2020 opening the way for recovery in the second quarter of 2020. In this context, we have made further downward revisions this past week in Korea, Taiwan, India, Hong Kong and Singapore,” said in its report.
In Korea, as reported by J.P. Morgan, said while the supply-chain-related manufacturing disruption has already been incorporated into their earlier forecast, the latest revisions now reflect weaker domestic private consumption given the spread of COVID-19. In Hong Kong, they further revised down first quarter 2020 growth, due not only to the hit to the tourism sector, but also to the COVID-19-related impact on domestic consumption.
An overall slowdown in global demand would also negatively affect the region, J.P. Morgan said.
“There is a third causal mechanism, which is that of a broader slowing in global demand, especially with the outbreak reaching the rest of the world. Thus, an emerging uncertainty for EM Asia’s cyclical profile is whether the spread then affects broader global sentiment, with an ensuing knock-on to capital spending, implying a shallower and delayed recovery for the region,” J.P. Morgan said. Socioeconomic Planning Secretary Ernesto Pernia for his part said that if COVID-19 persists for the entire year it would slash less than a percentage point in the county’s gross domestic product (GDP).
Pernia said the impact of COVID-19 could reduce the country’s economic output by 0.3 percentage point to one percentage point this year. In effect, the government revised upward its earlier projects with the upper band of the latest estimate higher than the initial figure of the National Economic Development Authority (NEDA), previously at 0.7 percentage point of GDP. This is assuming the contagion would linger for up to 11 months.
At the same time, he said the impact could be worse because of the indirect effect and the multiplier effects. “There are many multipliers, so that could still go up,” Pernia said.
The economic impact projections were based on assumptions that Chinese inbound tourism to the Philippines will be cut by 100 percent and other foreign tourists will be reduced by 10 percent. For this year, the government expects the economy to grow by 6.5 percent to 7.5 percent this year. Given these scenarios, experts believe that the Philippine economy will indeed take a hit because of the negative impact of the virus.
It is now up to the Duterte administration’s economic team to implement preemptive measures that could boost the economy such as boosting additional state spending and lowering interest rates. The economy’s return to the growth path may be seen in the second half of the year. Add to that the effect and delay on the government’s battle cry campaign, “Build, Build, Build”.
But this, for sure, would depend on how well the administration would respond to cushion the economy against the impact of the virus.
With additional reports: The Philippine Star, Iris Gonzales,
Photo Sources: euromoneyseminar, Albert Alcain/Presidential Photo, Toto Lozano/Presidential Photo, Malacañang Photos, rappler.com, filipinolive.com