A COVID-19 outbreak that will extend for the entire year will cut gross domestic product (GDP) growth by up to 1 percentage point (ppt) this year, putting at risk the government’s 6.5-7.5 percent target, the country’s chief economist said Monday.
Separately, Philippine National Bank (PNB) projected that beyond the adverse impact on tourism and service sectors, the COVID-19 contagion could extract a $12.2-billion toll on the Philippine industrial sector with the disruption of imports from China that support the manufacturing supply chain.
If the spread of COVID-19 in and out of China will be contained by June, the impact on this year’s GDP growth will be a 0.3-ppt reduction, Socioeconomic Planning Secretary Ernesto M. Pernia said on the sidelines of Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno’s book launch.
But if COVID-19 continues to hurt tourism, trade and manufacturing until yearend, one percentage point will be shed from 2019 GDP growth, said Pernia, who heads the state planning agency National Economic and Development Authority (Neda).
Pernia pointed out that the Philippines “imports a lot of raw materials and intermediate products from China.”
China was the Philippines’ top trading partner last year—the biggest source of imported goods and the third-largest export destination.
For Pernia, higher spending on public goods and services would shield the domestic economy from any economic fallout coming from COVID-19 such that preliminary estimates showed the budget deficit could widen to 3.3 to 3.5 percent of GDP this year and exceed the program of 3.2 percent of GDP.
Pernia said the possible expansion of the budget-deficit cap would be discussed during a soon-to-be-held meeting of the Cabinet-level Development Budget Coordination Committee.
The Neda chief said the government might also have less fiscal space to help sectors reeling from the impact of COVID-19, given that the collection of import duties and other taxes by the Bureau of Customs, for instance, was expected to take a hit due to decreasing shipment from China.
Internal Revenue Commissioner Arnel S.D. Guballa told the Inquirer Monday that while the Bureau of Internal Revenue has 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 other hand, 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.
In a PNB research dated Feb. 27, a potential annual production loss of $12.2 billion—equivalent to 2 percent of 2017 production—could be incurred assuming that the country would miss out on 100 percent of non-oil imports imports from China and limited substitutes are found.
“Hefty dependence on non-oil imports coupled with limited ‘value added’ (implied by large contribution of raw material use in production) heightened the vulnerability of manufacturing to a supply shock COVID-19 scenario of limited imports from China,” the research said.