COVID-19 to cut growth below 6%

Prospects for Philippine economic growth picking up pace this year and returning to the 6-percent level have turned dimmer as the global community grapples with the dire effects of the coronavirus (COVID-19) contagion, deemed as the “black swan” of 2020.

In a research note, New York-based think tank Global Source slashed its gross domestic product (GDP) growth forecast for the Philippines this year to 5.7 percent from 6.2 percent after considering the probable impact of the COVID-19 contagion through various transmission channels, especially tourism, remittances and online gaming.

The new forecast marks a slowdown from the GDP growth of 5.9 percent posted last year, when delayed legislation of the national budget curbed infrastructure spending. It is also much lower than the government’s target range of 6.5 to 7.5 percent.

Further reductions are possible depending on how the COVID-19 crisis evolves globally, Global Source said in a research note authored by economists Romeo Bernardo and Marie-Christine Tang.

Given the Philippines’ external linkages and particularly its increased closeness in recent years to the Chinese economy by way of tourism and foreign trade, Global Source said the negative impact on local growth would be in the range of 0.1 percentage point to as much as a full percentage point.

“We think that under the current environment of fear and uncertainty, more policy interest rate cuts are unlikely to have much impact. We worry too that, considering new data showing a substantial burst in public spending in December last year that resulted in a full-year budget deficit of 3.5 percent of GDP, fiscal stimulus this year would be less than initially expected, especially if the government intends to stay within its 3.2 percent of GDP budget deficit cap,” the research said.

In downgrading its growth outlook, the think tank now believes the impact of COVID-19 would be larger based on findings from experts who tracked the spread of the virus and the impact on China and the global economy.

“While the actual outcome ultimately depends on a number of unknown factors about the disease’s transmission, including how people get infected, the common view now seems to be that COVID-19 will be around longer and fears of contracting the disease will limit activity, especially travel, possibly beyond the second quarter,” the research said.

As such, Global Source sees that a global slowdown is plausible, in which case the impact on Philippine GDP will be closer to the mid- to top-end rather than the low-end of the projected range of growth decline.

On the tourism space, Global Source said even if the ban would last through the first quarter only, fear would curtail travel from other countries, whether for leisure or business through the second quarter. A 20-percent reduction in the number of tourists for the year—assuming zero tourists from China and Korea for two months and 50-percent drop in arrivals from other countries for six months—is seen to translate into losses equivalent to 0.5 percent of GDP.

As far as remittances are concerned, Global Source said a 10-percent reduction in these earnings—assuming land-based remittances continue to grow at 3 percent—would reduce total remittances by 0.2 percent of GDP relative to the baseline forecast.

On the Philippine offshore gaming operators (Pogo) industry, Global Source said a no-growth scenario for the year would be probable even if the travel bans were lifted soon.

Unofficial counts of Pogo workers estimate that the number had grown from close to nil in 2016 to 440,000 last year with total wages estimated at around 1 percent of GDP, the bulk of which would have been spent locally.

On commodities and exports, Global Source said it was too early to assess the impact. “Exporters we consulted have yet to see production affected,” the research said. INQ