Harder than anticipated

The global panic caused by the coronavirus epidemic will adversely impact the Philippine economy harder than initially anticipated. The country’s economic managers agree, although they are trying to assuage the people’s fears by pointing out that economic growth this year and the next will be fueled by factors not affected by COVID-19, specifically citing the Duterte administration’s “Build, build, build” infrastructure program.

Stock markets around the world have been free-falling, mirroring investor expectations of an economic downturn. Bourses in New York, London, Frankfurt and others were posting sharp one-day declines of as much as 4.61 percent last week. A slowing global economy is also pulling crude oil prices lower, with Brent oil now at just $50 a barrel. Gold, a traditional safe haven for investors, is now at $1,600 an ounce.

According to an Associated Press report, “Economists have forecast global growth will slip to 2.4 percent this year, the slowest since the Great Recession in 2009, and down from earlier expectations closer to 3 percent. For the United States, estimates are falling to as low as 1.7 percent growth this year, down from 2.3 percent in 2019. But if COVID-19 becomes a global pandemic, economists expect the impact could be much worse, with the US and other global economies falling into recession.”

The biggest hit the Philippines will take will be on tourism. Last year, the Philippines welcomed 8.26 million foreign visitors. Of this number, 1.98 million were South Koreans. They were followed by 1.74 million Chinese tourists. The United States was third with 1.06 million, followed by Japan and Taiwan with 682,788 and 327,273.

Of the five biggest tourism markets, the top two — China and South Korea — are now covered by a total or partial travel ban. The United States and Japan are also at high risk as their governments have warned their citizens to brace for an anticipated worsening of COVID-19 in their countries. The government is also studying whether to include three more countries — Iran, Japan and Italy — to the ban after they reported a surge in COVID-19 cases.

Expected to suffer are the country’s airlines that ferry these tourists. Budget carrier Air Asia Philippines has estimated a 25-percent cut in revenues because of the travel restrictions in place. Flag carrier Philippine Airlines has announced that it was laying off 300 employees.

Then there are the hotels and resorts scattered across the archipelago that are experiencing a sharp decline in bookings. The National Economic and Development Authority had estimated that the travel and tourism industry stood to lose P22.7 billion a month.

Tourism Secretary Bernadette Romulo Puyat is pushing domestic tourism instead to mitigate the impact on the sector. Since many airlines have cut their domestic fares, she is talking to officials of hotel and resort groups for them to similarly cut their rates to lure local visitors.

To further boost domestic tourism, President Duterte is scheduled to visit Boracay this month, his first since the famed tourist island was shuttered for six months for rehabilitation. The government’s message is that it is safe to travel domestically since the Philippines doesn’t have any case of COVID-19 human transmission so far.

Internally, some factors may also help the economy remain in its high-growth path despite the outbreak. With government continuing to spend billions of pesos on infrastructure — roads, bridges, railways, airports, seaports — the multiplier effect on cement, steel, transportation and related industries is still projected to be tremendous, along with the impact on employment.

The Bangko Sentral ng Pilipinas has also cut interest rates to pump-prime the economy by lowering the cost of borrowed funds for economic activities. Monetary authorities are expected to cut key rates further.

Bangko Sentral Governor Benjamin Diokno, speaking at the induction of the officers of the Economic Journalists Association of the Philippines last week, said the country should not despair because of COVID-19. Economic growth for the next two years, he noted, will remain at a robust 6 percent—much of it to come from internal sources such as “Build, build, build” and the healthy financial position of the government and the country as a whole. One can only hope that optimism pans out, as the world confronts what appears for now to be an open-ended global health — and economic — emergency.