The COVID-19 outbreak would hinder the Philippine economy from growing to its 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 along with its special administrative regions Hong Kong and Macau—was the Philippines’ second biggest source of inbound tourists after South Korea, which was also grappling with a jump in coronavirus cases, prompting the Department of Foreign of Affairs to discourage “nonessential travel” there.
The government targets an economic growth of 6.5-7.5 percent this year after gross domestic product (GDP) expanded by an eight-year low of 5.9 percent in 2019 due mainly to public underspending on goods and services following the delayed approval of the P3.7-trillion 2019 national budget. In the first quarter of 2019, GDP grew by a dismal 5.6 percent.
The spread of COVID-19 in and out of China is also 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 ‘preemptive’ measure to ‘ward off potential spillovers associated with external headwinds.’ We think another cut is likely over the coming months,” Capital Economics said.