MANILA, Philippines — The COVID-19 outbreak would hinder the Philippine economy from growing to full potential during the first quarter as tourist arrivals—especially from China—take a hit, London-based Capital Economics said.
“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 hit,” Capital Economics senior Asia economist Gareth Leather, Asia economist Alex Holmes, and research assistant Sheana Yue said in a Feb. 25 report titled “Assessing the impact so far.”
China—now subject of a travel ban, including its special administrative regions Hong Kong and Macau—was the Philippines’ second biggest source of inbound tourists only next to South Korea, which was also grappling with a jump in cases, prompting the Department of Foreign of Affairs (DFA) to discourage “nonessential travel” there.
The government targets 6.5-7.5 percent economic growth year after gross domestic product (GDP) expanded by an eight-year low of 5.9 percent last year mainly due to public underspending on goods and services no thanks to late approval of the P3.7-trillion 2019 national budget.
In the first quarter of 2019, GDP grew by a dismal 5.6 percent, such that economic managers expect faster growth this quarter with the budget enacted at the start of the year.
However, the spread of COVID-19 in and out of China was slowing imports from China—the Philippines’ top trading partner, as well as domestic retail sales as many people shun going out in a bid to avoid infection, hence posing a risk to the government’s tax revenue targets.
Capital Economics noted that the Bangko Sentral ng Pilipinas (BSP) last Feb. 6 cut the policy rate by 25 basis points to 3.75 percent “partly in response to the virus.”
“The BSP described the cut as a ‘pre-emptive’ measure, to ‘ward off potential spillovers associated with external headwinds.’ We think another cut is likely over the coming months.
Inflation, which reached an eight-month high of 2.9 percent in January, remains comfortably within the central bank’s 2-4 percent target range,” Capital Economics said.