MANILA – The Philippine economy is projected to weaken to about 5.8 percent this year, lower than last year’s 5.9 percent output if the new coronavirus disease (Covid-19) outbreak lasts for around six months.
A report by Union Bank of the Philippines’ (UnionBank) Economic Research Unit (ERU) dated February 13 traced the risks to growth to the decline in tourist arrivals, as well as exports and imports from China.
The Philippine government has banned tourists from mainland China, Macau, Hong Kong and Taiwan, and those who have been to these four places 14 days prior to their arrival here.
The report said Chinese tourists are the second largest visitors to the Philippines in 2018 and tourism revenues from this group account for around 12.7 percent of the domestic economy’s output that year.
Anxieties on the disease will also affect travel plans of other foreign tourists as well as local tourists, and this is expected to further increase the hit on tourism receipts, it said.
Supply chain disruption is seen to impact both the Philippines exports to China and imports from China given the temporary halting of operations of factories and manufacturing firms on account of the Covid-19.
“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,” it said.
It said that “imports may improve ahead of exports as the Duterte government resumes its ‘double stimulus’ through infrastructure development and social services spending.”
Inflation, in turn, is seen to post an average of 2.7 percent this year if the virus is contained within three months, and an average of 2.6 percent if the virus is contained within six months.
UnionBank’s ERU earlier projected inflation to average at 3.2 percent this year.
Last year, the domestic rate of price increases averaged 2.5 percent.
With these factors, the Bangko Sentral ng Pilipinas (BSP) is seen to deliver its next 25-basis-point key policy rates reduction “earlier than expected” after the same level of rate cut decided on by the policy-making Monetary Board (MB) last February 6.
To date, the MB is generally projected to announce the next rate cut in the second half of this year.
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