Prolonged virus outbreak to trim growth below 6%

MANILA, Philippines — The country’s economic growth momentum could be derailed, with gross domestic product (GDP) growth slowing down further and staying below six percent if the coronavirus disease-2019 (CoViD-19) outbreak lasts about six months.

Ruben Carlo Asuncion, chief economist at Union Bank of the Philippines, said in a latest research note that the impact of the virus outbreak would be in terms of GDP growth, inflation and monetary policy.

“If, by some reason, the spread lasts up to about six months, annual GDP growth for 2020 will be at 5.8 percent,” Asuncion said.

The country’s GDP growth hit an eight-year low of 5.9 percent last year from 6.2 percent in 2018 due to soft global demand due to the US-China trade war, the tightening cycle by the Bangko Sentral ng Pilipinas (BSP), and the delayed passage of the 2019 national budget.

Economic managers expect a GDP growth of between 6.5 and 7.5 percent for this year.

However, Asuncion said GDP growth for this year could pick up to 6.3 percent if the virus outbreak lasts only for three months. The Aboitiz-led bank earlier projected the country’s GDP to accelerate to 6.6 percent this year.

He said the sharp decline of Chinese tourists due to the temporary travel bans is an immediate hit on the Philippine tourism industry, which accounts for about 12.7 percent of total GDP in 2018.

“Furthermore, the outbreak will also impact regional travel and tourism simply because of the fear of the unknown. This, eventually, will affect travel plans of other foreign visitors magnifying further the drop in tourism receipts as the spread continues,” he said.

The outbreak, Asuncion explained, would also result in supply chain disruptions and affect the country’s export sector.

“The expected strong and consistent recovery of the export sector in 2020 may have to wait until the spread is contained and businesses go back to normal in China. On the other hand, imports may improve ahead of exports as the Duterte government resumes its double stimulus through infrastructure development and social services spending,” he said.

Asuncion said inflation could ease to 2.6 percent if the outbreak is prolonged by six months and to 2.7 percent if it lasts for about three months as this could further lead to lower global oil prices.

“Barring any surprises from other geopolitical risks, Philippine inflation is expected to decline this 2020. The probable decline is still largely based on the duration of the CoViD-19 spread and its immediate containment and has obvious impact on monetary policy moving forward,” Asuncion said.

The economist also said the second rate cut by the BSP’s Monetary Board for the year could be pushed earlier than expected.

“Furthermore, if and when the outbreak lasts longer than anticipated, there may be more easing actions from the Philippine central bank to help cushion the impact on economic growth,” Asuncion said.