Slight dent on economy seen from virus crisis

While the novel coronavirus (2019-nCoV) may slightly dampen tourist arrivals and affect some Philippine exports to China, the crisis will not cause a big dent on the projected faster gross domestic product (GDP) growth this year, the Duterte administration’s chief economic manager said Tuesday.

“At this moment, it is reasonable to expect that while these developments might slightly restrain our economic expansion, these threats are not enough to force a dramatic reduction in our growth estimates. We are standing by our working projection of a GDP growth rate of between 6.5 and 7.5 percent for 2020,” Finance Secretary Carlos G. Dominguez III said during a Senate hearing on the Philippine government’s preparedness on nCoV’s spread in and out of China.

GDP growth slowed to an eight-year low of 5.9 percent in 2019, but the economic team is optimistic of a rebound this year especially with the on-time implementation of the P4.1-trillion 2020 national budget.

“Given that we may be in the early stages of this outbreak, it will be a challenge to estimate its potential economic costs. We are consoled by the observation that the virus has limited local transmissions outside China,” Dominguez said.

However, Dominguez said nCoV’s impact on the economy would “most likely be centered on the tourism sector.”

“The travel and tourism industry around the globe is taking a hit as a result of the various levels of travel bans imposed by national governments and of voluntary decisions of airlines to cut flights to and from China,” Dominguez noted.

Citing historical data, Dominguez said that during the SARS outbreak in 2003, tourist arrivals declined 1.3 percent to 1.9 million but jumped by 20.1 percent to 2.3 million in 2004.

A decline in inbound tourists again happened in 2009 at the height of the H1N1 US-epicentered outbreak in 2009, although Dominguez noted that the global economic downturn at that time had a bigger impact on the travel industry.

By the time of the MERS-COV outbreak, the Philippines’ tourism sector was already “resilient,” Dominguez said.

Dominguez added that the tourism industry’s direct gross value-added continued to increase despite the episodes of viral outbreaks as tourists’ average spending was also increasing “mainly due to a substantial increase in arrivals from China.”

As such, “while travel restrictions are in force to protect the health of Filipinos, tourism’s direct gross value-added will likely decrease,” the finance chief said.

At the same time, Dominguez said it would benefit the country if those who decided to suspend their overseas travel plans instead push through to domestic destinations.

In terms of manufacturing, Dominguez said that Wuhan—the Chinese city where the virus originated—was a major industrial and transport hub in the mainland.

In this regard, the temporary halt in operations of a number of Chinese factories amid the lockdown could create some supply chain problems and affect trade and industry elsewhere, Dominguez said.

Over half of Philippine exports to China last year were electronics, Dominguez said, such that the Philippines’ biggest export commodity would take a hit.

“In the immediate term, the temporary closures of factories in China and possible disruption in global supply chains may cause a temporary, slight decline in our exports, particularly of electronics and auto parts,” he said.

Latest government data showed that China and Hong Kong combined were the Philippines’ top export destinations as well as sources of imports as of end-November last year.

The Philippines may also serve as an alternative destination to host Chinese firms taking a hit from the outbreak of nCoV.

“The Department of Trade and Industry has committed to work closely with affected Chinese and China-based companies looking to strengthen their operations by adding a production site outside China,” Dominguez said.