By Cai Ordinario, Businessmirror, 9 Feb 2020
THE National Economic and Development Authority (Neda) and local economists said the impact of the novel coronavirus (2019-nCoV) on the economy could be larger if the effect on industry, agriculture, and consumption spending will be included.
Neda Undersecretary Rosemarie G. Edillon told the BusinessMirror over the weekend that economic losses due to the nCoV were pegged at a minimum of P20.5 billion a month, but this only accounts for tourism and its multiplier effects.
Economists, such as University of Asia and the Pacific School of Economics Dean Cid Terosa, said the virus could shave off 0.3 percentage points from GDP growth, and this would mean 150,000 jobs not created, and P280 billion in goods and services not produced.
“Food exports will go down, government collections will suffer and consumption spending may weaken. I’d like to stress that the multiplier effects of all these on household income and employment are notable, as well,” Terosa said.
Such “negative events,” he added, “can temporarily derail government efforts to fast-track poverty reduction and jump-start economic growth this year. The microeconomic effects are as significant as the macroeconomic effects of the global epidemic.”
If the virus continues to spread for the rest of the year, the Neda estimates the country’s economic growth could slow by nearly 1 percentage point.
If nCoV lasts for three months, this could cut growth by 0.06 percentage points but if the impact lasts up to six months, this could cut 0.3 percentage points from GDP growth. If the impact lasts for the rest of the year, the virus will cut 0.7 percentage from GDP growth.
Preliminary estimates
The Neda estimates assumed that between February and June, as well as February to December, Chinese inbound tourism to the country would decline by 100 percent and foreign tourist arrivals, 10 percent from baseline.
“These are preliminary, by the way,” Socioeconomic Planning Secretary Ernesto M. Pernia told reporters last Friday. “This would change, of course, depending on how things pan out.”
The government’s outlook is similar to the one recently made by the Ateneo Center for Economic Research and Development (Acerd).
In a recent presentation, Dean Luis F. Dumlao of the Ateneo de Manila University John Gokongwei School of Management said the nCoV could cut GDP growth by 0.4 percentage points. However, such estimate only accounts for the virus’ impact on tourism.
Acerd estimates that full year GDP could average 6.1 to 6.4 percent this year, and the estimate already includes the impact of the nCoV on the economy. This is also below the government’s target of 6.5 to 7.5 percent this year.
First-quarter growth is expected to be the slowest for the year at 6 percent followed by the fourth quarter at 6.1 percent. The second and third quarters, Acerd data showed, would likely post a growth of 6.3 percent.
Countering moves
Meanwhile, Edillon told this newspaper that, despite the grim outlook, the country can still do a lot to counter any negative impact on growth.
She said the government intends to do this in three phases. The first one is to prioritize the safety of Filipinos by ensuring the observance of quarantine protocols for Persons Under Investigation (PUI).
The second phase involves promoting domestic tourism to include conferences, a move that has begun, with Cebu Pacific and a hotel association taking the lead.
The third phase involves health promotion and the set up of pandemic response protocols.
“This [P20.5 billion a month cost] is the direct and multiplier impact resulting from the tourism ban. Anything more is due to other factors, perhaps fear, and need to be addressed differently,” Edillon told BusinessMirror.
Fighting fear, low spending
As an economy that significantly depends on consumption spending, the Philippine economy is always affected by any decline in household and government expenditures, which account for about 70 percent of GDP.
Former Tariff Commissioner George Manzano told BusinessMirror that given the uncertainty caused by the nCoV, it is natural for Filipinos to minimize spending.
If there are Filipinos who will lessen their visits to malls, Manzano said this is a reflection of the virus “scare” gripping the country and this takes times to address.
But in general, Manzano said Filipino consumption is largely dependent on Overseas Filipino Worker (OFW) remittances. He said only when demand for Filipino workers in China, Hong Kong decline could consumption take a hit.
In the same vein, Philippine Institute for Development Studies (PIDS) Research Fellow Roehlano M. Briones said the nCoV will cause restrictions in the movement of Chinese goods, as well as people.
Briones said Filipinos, many of whom frequent malls on their free time, may also avoid these places to prevent any contact with possible nCoV carriers.
“But spending need not go down—other options like online [purchases], or making bulk buying, etc. [There will be] minimal impact [on an] annual basis,” Briones pointed out.
At this point, Ateneo Eagle Watch Senior Fellow Leonardo A. Lanzona Jr. said it is important to “get rid of false narratives” that contribute to “panic” which will negatively impact a consumption-driven economy.
Lanzona said as the summer months are just around the corner, any fear of the health crisis from nCoV spreading would dissipate. The virus, experts have said, only thrive during cold weather.
“Once the panic diminishes, the malls will be back to normal. We just need to wait this out, and get rid of the false narratives,” Lanzona said. “[These false narratives are] the false rumors that are creating disproportionate panic.”
Trade and industry
Given the size and impact of China on global trade, Manzano said this will likely take a hit given the spread of nCoV. This will not only cut global trade but also depress commodity prices.
Manzano added that inputs to value chains, where China is a big player, will also be affected. This will lead to a contraction on export growth, especially for China.
Acerd Director Alvin P. Ang said in his column in the BusinessMirror last Friday, “the China factor” cannot be dismissed easily and will affect countries globally. In the case of the Phillippines, China is the country’s largest trade partner.
Ang said the combined total trade is about 15 percent, accounted for by 12 percent of exports and 18 percent of imports. The Philippines imports industrial supply, capital goods and parts of capital goods from China which accounts for approximately 70 percent of total imports.
In terms of exports to China, Ang said around 90 percent of it is industrial supply, capital goods and its parts. The country has a deficit of about $10 billion with China. In value terms, our total trade with China is about $25 billion, or roughly the total value of OFW remittances.
“In the world of global value chains, our exports to China are mostly inputs for their manufacturing sector. If China facilities continue to close for another month, expect a significant impact to exports exposing as much as $6 billion. This is more worrisome since the export sector is also our local manufacturing base,” Ang said.
Meanwhile, in terms of food and consumption goods, Ang said the country imports about 13 percent of its needs from China. But Manila’s food exports to Beijing are also significant.
Pilipino Banana Growers and Exporters Association (PBGEA) Executive Director Stephen A. Antig earlier told the BusinessMirror that Chinese buyers started canceling orders last week, mostly on logistical problems of distributing their goods owing to the virus-induced lockdowns in parts of China. This could cause the Philippine banana industry to lose an estimated $5.5 million a week.
“Cavendish banana exports will get hit. China is our largest market [and] the sad part is that this is the high price season,” UA&P Center for Food and Agribusiness [CFA] Executive Director Rolando T. Dy said.
Dy said the annual report on banana exports to China showed that the country ships around 1 million tons, the value of which is higher between February and May.
Antig told this newspaper that some banana exporters have received notices from Chinese importers that they will stop buying Philippine bananas, and did not indicate when they will resume ordering from local traders.
He also said exporters who wish to ship bananas to China are having a difficult time finding a vessel that can transport the orders.
The cancellation of orders stemmed from the lockdown of cities in China to control the spread of the virus, which has killed 563 and infected 28,000 people, according to international reports.
Antig said supermarkets have started reducing their orders as the supply will not reach them due to the lockdown.
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