Coro­n­avirus may de­lay PHL eco­nomic re­cov­ery

Business World - - Front Page -

THE spread of the coro­n­avirus dis­ease 2019 (COVID-19) could de­lay the re­cov­ery of the coun­try’s eco­nomic growth this year as it could im­pact driv­ers like re­mit­tances, con­sump­tion and tourism, ac­cord­ing to ANZ Re­search.

Still, growth is ex­pected to re­main on track, with the gov­ern­ment and the cen­tral bank ex­pected to sup­port the econ­omy with fis­cal and mone­tary stim­u­lus.

In a report re­leased on Thurs­day, the re­search arm of ANZ Bank said the COVID-19 out­break is a “key down­side risk” to the Philip­pine econ­omy.

“A hit to Q1 GDP (gross do­mes­tic prod­uct) growth looks likely, but fur­ther out, the im­pact on ful­lyear growth will de­pend on how quickly the virus spread can be con­tained and how quickly in­fra­struc­ture spend­ing can be pressed into ac­tion,” ANZ Re­search said, adding the im­pact on full-year GDP is “un­clear for now.”

The econ­omy grew by 6.4% in the fourth quar­ter, bring­ing the full-year 2019 fig­ure to 5.9% in 2019, slower than 2018’s 6.2% and miss­ing the down­ward-re­vised 6%-6.5% set by the gov­ern­ment for that year.

The full-year read­ing was also the slow­est in eight years, and also broke the econ­omy’s seven

year streak of at least six per­cent growth.

ANZ Re­search said the out­break could trim first-quar­ter growth by as much as 0.42 per­cent­age point (ppt), which they fore­cast to be at 6.8%.

It, how­ever, main­tained its 2020 GDP growth fore­cast at 6.2% on the back of the as­sump­tion that COVID-19’s eco­nomic im­pact “should be rel­a­tively mod­est.”

The gov­ern­ment is targeting 6.5% to 7.5% GDP growth this year.

“Re­cent high fre­quency in­di­ca­tors, such as credit and im­port growth, sug­gest that eco­nomic con­di­tions are re­cov­er­ing, al­beit at a mod­est pace,” ANZ Re­search said.

“In our base case sce­nario, we as­sumed that the bulk of the neg­a­tive im­pact will oc­cur in Q1 fol­lowed by a re­cov­ery in growth in H2, sup­ported by both mone­tary and fis­cal stim­u­lus.”

UnionBank of the Philip­pines, Inc.’s Eco­nomic Re­search Unit (ERU), in a sep­a­rate re­search note yes­ter­day, for its part said an­nual GDP growth in 2020 could be stalled at 5.8% in the case the COVID -19 out­break con­tinue for about six months. ERU’s base­line 2020 growth fore­cast is at 6.6%.


ANZ Re­search said slower eco­nomic ac­tiv­ity in China and other af­fected coun­tries will have spillover ef­fects on the Philip­pines, par­tic­u­larly tourism, re­mit­tances and im­port de­mand, which could con­se­quently af­fect the coun­try’s cur­rent ac­count.

ANZ said Main­land China ac­counted for just 0.1% of to­tal re­mit­tances in the 11 months to Novem­ber 2019, while re­mit­tances from Filipinos work­ing in Hong Kong and Tai­wan ac­counted for 2.6% and 2.0% re­spec­tively, bring­ing the cu­mu­la­tive num­ber to 4.7%.

“It is also important to bear in mind that around a fifth of over­seas Filipino work­ers are en­gaged in the ship­ping (pas­sen­ger and cargo) in­dus­try, so any weak­ness in cruise travel or global trade… will have a neg­a­tive im­pact.”

The report said a 50% drop in re­mit­tances from main­land China, Hong Kong and Tai­wan for three straight months, cou­pled with a 20% de­cline in in­flows from the rest of Asia, could shave 0.11 ppt off first-quar­ter GDP. Mean­while, an ex­tended de­cline in these in­flows for a year could trim as much as 0.51 ppt from ful­lyear GDP growth.

Mean­while, slower Chi­nese eco­nomic ac­tiv­ity due to business clo­sures and in­ter­nal travel re­stric­tions will likely dampen Chi­nese de­mand for im­ports, it said.

“The Philip­pines’ ex­po­sure to goods ex­ports…to China is es­ti­mated to be around 1.6% of GDP… Thus, a 20% drop in im­port de­mand from China for three months will trans­late to a 0.08 ppt hit to Philip­pines’ Q1 GDP through this chan­nel,” it added.

With Chi­nese ex­ports to the Philip­pines also likely to take a hit amid fac­tory shut­downs, lo­cal in­dus­trial pro­duc­tion may also be af­fected neg­a­tively.

Still, ANZ Re­search said the Philip­pines may be “rel­a­tively less ex­posed” than its neigh­bors to trade dis­rup­tions due to the out­break.

As for tourism, ANZ Re­search ex­pects tourist ar­rivals from other coun­tries, not just China, to slow amid con­ta­gion fears, with the sus­pen­sion of flights to some coun­tries most af­fected by the virus also pre­vent­ing some Philip­pine over­seas work­ers from re­turn­ing to work.

A re­duc­tion in Chi­nese vis­i­tors, which was the coun­try’s sec­ond big­gest tourism mar­ket last year, is ex­pected to af­fect GDP by be­tween 0.20-0.56 ppt, de­pend­ing on the ex­tent of the out­break and the de­cline in tourist ar­rivals.

ANZ Re­search, how­ever, said lower oil prices will give the cur­rent ac­count some buf­fer ver­sus the ex­pected neg­a­tive eco­nomic im­pact of COVID -19. —

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