COVID 19 worst case scenario for PH economy: 1 percentage point drop in GDP

The Philippine economy is likely to shed up to 1 percentage point (ppt) should the COVID-19 outbreak extend for a year, the country’s chief economist said.

Socioeconomic Planning Secretary Ernesto M. Pernia said the virus could put at risk the government’s growth target of 6.5 to 7.5 percent.

If the virus was contained in China by June, its impact on Philippine gross domestic product (GDP) growth was likely a cut of 0.3 ppt reduction, Pernia said on the sidelines of Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno’s book launch.

But if COVID-19 continued to hurt tourism, trade and manufacturing until end of 2020, 1 percentage point will be shed from 2019 GDP growth, said Pernia, who heads the state planning agency National Economic and Development Authority (Neda).

Pernia said that the Philippines “imports a lot of raw materials and intermediate products from China.”

China was the Philippines’ top trading partner in 2019—the biggest source of imported goods and the third-largest export destination.

Pernia said higher spending on public goods and services could shield the domestic economy from any economic fallout from COVID-19.

Initial estimates showed the budget deficit could widen to 3.3-3.5 percent of GDP this year and exceed the ceiling of 3.2 percent of GDP.

Pernia said the possible expansion of the budget-deficit cap will be discussed during a soon-to-be-held meeting of the Cabinet-level Development Budget Coordination Committee (DBCC).

The Neda chief said the government may nonetheless have less fiscal space to help sectors reeling from the impact of COVID-19 because collection of import duties and other taxes by the Bureau of Customs (BOC), for instance, was expected to take a hit due to decreasing shipment from China.

Internal Revenue Deputy Commissioner Arnel S.D. Guballa told the Inquirer Monday that while the Bureau of Internal Revenue (BIR) had yet to finalize year-to-date collection figures, corporate income taxes from airlines, hotels as well as manufacturers were already expected to be lower than usual.

On the flip side, the Philippines could attract firms temporarily moving out of China, but Pernia said a relocation would entail “rushing” Congress’ approval of the amendments to the Foreign Service Act, the Public Service Act, as well as the Retail Trade Liberalization Act to allow greater foreign participation in various industries.

Edited by TSB