Dominguez sees temporary strain on exports, tourism

MANILA, Philippines — The spread of the 2019 novel coronavirus (nCoV) may create a temporary adverse impact on the local tourism industry as well as the export sector, according to the Department of Finance (DOF).

During a Senate inquiry on the 2019 nCoV, Finance Secretary Carlos Dominguez said it is still too early to estimate the potential economic cost of the virus outbreak.

However, Dominguez acknowledged that the spread of the virus may hit the local tourism sector the hardest.

“A significant impact on the economy will most likely be centered on the tourism sector. The travel and tourism industry around the globe is taking a hit as a result of the various levels of travel bans imposed by national governments and of voluntary decisions of airlines to cut flights to and from China,” Dominguez said.

Citing historical data, Dominguez said tourist arrivals to the Philippines during the SARS episode in 2003 dropped by 1.3 percent to 1.9 million from 1.93 million in the previous year.

This, however, rebounded in 2004, when tourist arrivals rose by 20.1 percent to reach 2.3 million.

Furthermore, Dominguez said tourist arrivals slightly decreased back in 2009, during the H1N1 outbreak. However, he said this could likely be attributed more to the impact of the global financial crisis.

“Philippine tourism also proved resilient during the outbreak of the MERS-COV,” he said.

Dominguez said the gross value added (GVA) of the tourism sector may also likely decrease this 2020, as this has been driven mainly by the increase in tourist arrivals from China in recent years.

Aside from the tourism sector, Dominguez also noted that the lockdown on Wuhan, the center of the virus outbreak and the hub of transport and industry in central China, could also create supply chain problems that can affect trade.

“Factories have temporarily ceased operations due to the lockdown. Other factories in China are likewise just restarting operations after the long lunar year holiday.  A few have predicted economic disruption on a major scale but at this point it is too early to estimate the full economic impact,” Dominguez said.

With China being one of the Philippines’ top trading partners, particularly for electronic parts, Dominguez said the country’s exports may suffer due to this development.

“In the immediate term, the temporary closures of factories in China and possible disruption in global supply chains may cause a temporary, slight decline in our exports, particularly of electronics and auto parts,” he said.

“Incidentally, our top imports from China such as steel, machinery and petroleum are products that do not seem to carry the nCoV virus although we will continue to take all necessary precautions,” he said.

Despite these threats, the finance chief expressed confidence that economic growth could still hit the target range of 6.5 percent to 7.5 percent this year.

“At this moment, it is reasonable to expect that while these developments might slightly restrain our economic expansion, these threats are not enough to force a dramatic reduction in our growth estimates. We are standing by our working projection of a GDP growth rate between 6.5 percent and 7.5 percent for 2020,” he said.

To offset the impact of the virus, Dominguez said the Department of Tourism (DOT) would intensify the promotion of domestic destinations for local travelers who decided to postpone or forego international travel for the time being.

The agency will also continue to look for opportunities in other tourism markets to sustain the industry’s growth.

Meanwhile, economists expect probable losses of at least $300 million per quarter from tourism and external trade alone due to the global outbreak of the 2019 novel coronavirus.

“Probable losses to Philippine growth could reach $300 million (-one percent) per quarter from tourism and external trade losses alone. Moreover, we estimate stabilization by the second half of the year should the outbreak be contained within the first quarter,” Security Bank chief economist Robert Dan Roces said.

ING Bank Manila senior economist Nicholas Mapa said the pronouncements that the coronavirus outbreak would not derail growth momentum may not beb totally true.

“For as long as uncertainty hangs over the Philippines, we can expect anxiety to weigh on the economy the same way a cold or cough curtails all of us,” Mapa said.

“We’re still going about our daily routine but in no means are we 100 percent efficient.  Thus despite expectations for faster growth, unless we see additional stimulus from the government or a rapid clearing up of the situation, we may have to be content with growth faster than last year’s disappointing 5.9 percent print but once again pressed to meet our target for a 6.5-7.5 percent expansion,” Mapa said.            

According to the Dutch financial giant, the impact of the ongoing 2019-nCov has been estimated to hit as high as $600 million as trade and tourism take a hit.

“China is one of our top trading partners with sizeable demand for Philippine exports and a source of our imports.  Meanwhile, Chinese tourist arrivals represent the second most important source of tourist receipts to Koreans with overall average tourist spend tagged at roughly $1,200,” Mapa said.

Mapa explained a slowdown in tourist arrivals would hit overall consumption from retail sales, restaurants to hotels.  – With Lawrence Agcaoili, Cecille Felipe