Buckle up

The administration’s economic team may have played down the overall economic impact of the ongoing novel coronavirus scare on the Philippines, arguing that the massive infrastructure program will push economic growth higher this year. However, there is no denying that the growing global crisis will have significant repercussions on many industries and on consumer spending, which plays a key role in the country’s growth story.

This early, airlines have turned gloomy and are now expecting huge losses directly linked to the worsening global emergency. Philippine Airlines and Cebu Pacific have reported many booking cancellations. Cebu Pacific estimated the business loss from this crisis alone at P3-4 billion if this lasts six months, based on its previous experience with the severe acute respiratory syndrome or SARS in 2003, that also had a major impact on air travel. Cebu Pacific has 55,000 seats allocated a week to China routes such as Beijing, Shanghai, Canton, Xiamen, Shenzhen, Hong Kong, and Macau. PAL, which also flies to Beijing, Shanghai, Canton, Xiamen, Jinjiang, Hong Kong and Macau, has already decided to cancel chartered flights between Kalibo and several cities in China, in part due to the drop in demand from travelers because of the virus crisis. Philippines Air Asia is also affected by the cancellations as it also flies to Canton, Shanghai, Shenzhen, Hong Kong, and Macau.

With tourists either forced to stay home or are just being cautious and postponing foreign travel to a safer date in the future, the Philippine tourism sector will be punished as well. China has become the second-biggest source of tourists coming here, in part brought by the boom in the Philippine offshore gaming operators industry. The Chinese government has already banned outbound travel to prevent the spread of the disease. The multiplier effect of tourism is high. With the absence of foreign tourists, hotels, tour operators, restaurants, and resorts will also experience declining client numbers.

Local residents are similarly bound to be affected. As they are now being discouraged from visiting places with many people as a safety precaution, shopping and dining out will take a hit. The operations of shopping malls, restaurants and night spots will see some decline in patronage.The prevailing economic pessimism has been mirrored by stock markets not only here but all over the region. Shares tumbled across Asia last week on heightened concern over the impact of the virus outbreak in China. The Philippine Stock Exchange index, the main stock price barometer of the local bourse, entered the bear territory last Friday on fears of the spreading coronavirus crisis.

Industries will also suffer from a prolonged crisis. The Ayala group’s electronics unit has already stopped operations at its manufacturing facilities in China. Other companies with operations there are expected to follow suit.

Philippine importers, who mostly source from China, will increasingly find it difficult to have their shipments as the Chinese government locks down more places affected by the novel coronavirus. China is the Philippines’ top trading partner. In the first half of 2019, total trade between the two countries amounted to $16.43 billion, or 18.8 percent of the total trade of the country with the rest of the world. Exports to China amounted to $4.62 billion, while payment for imports from the mainland stood at $11.8 billion.The Philippine economy is consumer-driven, and this impending decline in consumption, particularly in the aviation and tourism sectors, will make quite a dent on the economy. And this is not the only crisis the Philippines is facing. The African swine fever in the farm sector is worsening, Taal Volcano’s restiveness may be just experiencing a pause, and global trade has been projected to slow down because of an imminent slump in the Chinese economy, the world’s second biggest and the epicenter of the current medical emergency. The economic impact on the Philippines may turn out to be far more significant than what the government is projecting so far.