Impacts of COVID-19 in the Philippines

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 Impact on the Economy (Economic Impact)

The hit to global growth is imminent, with a global recession possibly on the horizon. The Philippines will not be exempted from it.

Average global gross domestic product (GDP)  forecasts are around 0.9 percent for 2020, with the latest forecasts from  S&P  and  Capital  Economics at  1.0 percent and -1.0  percent, respectively.1  Bloomberg likewise presented four (4) scenarios for global growth —

1. China shock in which global GDP growth is at  2.9  percent; 
2. more outbreaks  with  2.3 percent global  GDP  growth;  
3. widespread contagion  with  1.2 percent global GDP growth; and 
4. global pandemic with 0.1 percent global GDP growth. 

Scenario 2 also assumes that there will only be “mild” recessions in Japan and the Euro Area. Similarly, in a March 2 report, the Organisation for  Economic Co-operation and  Development  (OECD)   suggested a  worst-case scenario of 1.5 percent global GDP growth for 2020. Global growth is seen to be primarily dragged down by direct effects of reduced demand and heightened uncertainty. They likewise estimated world trade to be significantly weaker, with a decline of 3.75 percent

Risks remain tilted to the downside,  with  Capital  Economics seeing a longer downturn for the global economy due to the following factors: (a) direct virus-related disruption that lasts longer than expected; (b) risk of lengthier recession or even another financial crisis as companies turn insolvent while central banks have limited monetary space,  resulting in higher unemployment and a further downturn in consumer spending.






There is a  high level of uncertainty surrounding the current situation,  given that there are still many unknowns concerning COVID-19. Related economic indicators also remain limited.  The estimates presented here are therefore based on scenarios and certain assumptions. The estimated transitory impact also does not yet take into account potential gains from mitigating measures. The main purpose is to flag risk areas as a basis for discussing appropriate responses

Impact on Travel and Tourism Industry

COVID-19 is expected to significantly affect the tourism sector.  In  2018,  international tourism contributed 1.5 percent of Philippine GDP. Chinese tourists comprise the second largest number of foreign tourists to the Philippines, accounting for 22.0 percent (1.8 million arrivals) of total foreign arrivals in 2019, next only to Korea (2 4.0% share; 2.0 million arrivals). Chinese tourists spent around PHP110.8  billion,  or over one-fourth of total tourism receipts in  2018.  Meanwhile,  Koreans spent  PHP126.6 billion. With the Philippine government travel ban to and from China and its administrative regions and a  partial ban to and from  South  Korea,  the tourism sector is expected to be significantly affected.

Following  President  Duterte’s declaration of an enhanced community quarantine (ECQ) in  Luzon on  March  16,  land,  air,  and sea travel was restricted as well.  This includes the suspension of mass transportation and all domestic flights.  In line with the  ECQ  in  Luzon,  local airlines announced the cancellation of flights for a period of nearly one month.

The  National  Economic and  Development  Authority  (NEDA) estimates that the above restriction in passenger traffic from China and its administrative regions (i.e., Hong Kong and Macau) and parts of South Korea, a 10.0 percent drop in foreign tourists from other countries until June, and a 100 percent decline in foreign tourists and airline revenues for one month due to the ECQ in Luzon, will result in a loss of gross value added of PHP77.5 to PHP156.9 billion, equivalent to 0.4 to 0.8 percent of GDP in 2020. Likewise, the slowdown in economic activities may reduce employment by about 33,800 to 56,600.


Impact on Exports

China is the country’s single largest trading partner, comprising a fifth of the Philippines’ total trade.In 2019, mainland China accounted for 14.0 percent of total exports and 23.0 percent of total imports.On the other hand, Hong Kong is the country’s 4th largest trading partner, accounting for 8.0 percent of total trade. In 2019, Hong Kong accounted for 13.0 percent of total exports but only 3.0 percent of total imports

As of March 13, China’s vice industry minister Xin Guobin reported that work resumption rates outside of Hubei province were 60.0 percent for small and medium enterprises and 95.0 percent for larger firms. A Peking University economist has noted, however, that there are several firms only turning on their lights, without any actual production so as to qualify for restart-subsidies. However, a February 17-20, survey done by the American Chamber of Commerce in China found that only a third of firms surveyed expect a return to normal business operations by the end of March 2020. Leading indicators such as coal consumption indicate that industrial activities remain subdued by about  40.0  percent,  while congestion at Chinese ports remains elevated. China’s official Manufacturing Purchasing Manager’s Index (PMI)sank to 35.7 in February (a far cry from January’s 50.0), signifying a contraction. The China  International  Capital  Corporation  Limited  and  Nomura  has  noted  that  the  PMI  data  for  March  may see improvements, but activity data may be zero or negative as businesses will not be completely back

With respect to our exports, among the most dependent on China as a market are mineral products (copper concentrates,  chromium),  veneer sheets,  seaweed,  bananas,  telecoms,  chemicals,  electronic data processing, and automotive electronics. These items together account for about 35.0 percent of our exports to China. The most significant among them are electronic data processing, bananas, and copper metal, as these three accounts for about 28.0 percent of exports to China. Based on partial customs data for February, total exports to China are down by about 55.0 percent.

There are no specific reports of factories or manufacturers within  Hong  Kong that have stopped operations partially or permanently. Business closures are limited to retail shops and service-oriented businesses. Therefore, among our exports that are the most dependent on Hong Kong, those that are more likely to be affected are those that are consumer-oriented such as mangoes, shrimps and prawns, and travel goods. However, the macroeconomic impact is likely to be limited given that the three items account for only 1.0 percent of our exports to Hong Kong. Based on partial customs data for February, total exports to Hong Kong are down by about 45.0 percent.

If the above-mentioned top  10 exports that are dependent on  China,  as well as the three consumer products dependent on  Hong  Kong, declined for one month  (February  2020)  at rates similar to the contraction seen in partial customs data for February (ranging from 11% to 100%), this will result in a loss of gross value added of PHP4.9 to PHP9.8 billion, equivalent to0.02 to 0.05 percent of GDP in 2020. This could result in an employment loss of 3,000 to 6,700