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The Virus Outbreak Is Testing Philippine Preparedness – Analysis

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The Philippines is well-positioned to cope with the economic impact of the virus outbreak, but is not immune to its human costs.

Since the Philippines is exceptionally prone to both extreme climate and geological events, Senator “Bong” Go’s bill for the creation of a Department of Disaster Resilience should be taken seriously. As the outbreak has shown, new calamities are just a matter of time. Proactive preparation matters.  

The human costs of the virus have so far been negligible in the Philippines. While the number of patients under investigation has climbed to almost 320, of which two-thirds are Filipinos and a third Chinese nationals. As of yet, there remain only three positive cases in the Philippines and all are linked with Wuhan, the epicenter of the crisis. 

But even if human costs can be kept to the minimum, economic impact will be tangible.

Expected economic impact 

In 2020, Philippine growth prospects were initially seen as more favorable, In particular, the ramped-up government spending related to the “Build, Build, Build” program was seen to buttress growth. To degree, structural growth potential and Duterte government’s economic policies can offset some of the adverse forces associated with the trade wars, the Taal eruption, even the virus outbreak. Yet, new political policy mistakes, such as the 2019 budget debacle, could change the picture.

After the set of rate cuts to support growth, lower borrowing costs and liquidity from reserve-rate-requirement (RRR) reductions can still support domestic demand. As elsewhere in Southeast Asia, the outbreak has already affected travel and tourism. 

Since China is the second-largest source of tourists in the country, the travel ban from the Chinese mainland coupled with the expected 10% reduction in visitors from other countries will penalize economic output. The decline is estimated at $215 million within a month, by the National Economic and Development Authority. 

If the outbreak persists with its current impact level until June, the GDP reduction is anticipated to climb to 0.3%, according to NEDA’s chief Ernesto Pernia. If it will prevail until December, the reduction would more than double to 0.7% ($2.6 billion). 

Growth scenarios

In view of the current outbreak data, the estimate based on shorter duration still seems more likely. Yet, its economic impact could prove more significant than anticipated. If, however, the outbreak persists until the end of summer, its adverse impact would prove greater than anticipated (on the basic scenarios, see my previous TMT column of Feb 3, 2020).

Before the outbreak, the International Monetary Fund (IMF) projected Philippine GDP growth to rise to 6.3% in 2020, underpinned by government spending acceleration and recent monetary policy easing. Meanwhile, above-consensus forecasts hovered at 6.7%.

Since the domestic drivers of the Philippine growth remain solid, a benign virus impact scenario might not undermine such horizons. 

Yet, the critical caveat remains. These scenarios depend on the duration and severity of the outbreak – and how smoothly it can be managed in the Philippines. 

The original commentary was released by The Manila News on Feb. 10, 2020. The data has been updated (Feb 11, 2020)

Dan Steinbock

Dan Steinbock

Dr Dan Steinbock is an recognized expert of the multipolar world. He focuses on international business, international relations, investment and risk among the leading advanced and large emerging economies. He is a Senior ASLA-Fulbright Scholar (New York University and Columbia Business School). Dr Dan Steinbock is an internationally recognized expert of the multipolar world. He focuses on international business, international relations, investment and risk among the major advanced economies (G7) and large emerging economies (BRICS and beyond). Altogether, he monitors 40 major world economies and 12 strategic nations. In addition to his advisory activities, he is affiliated with India China and America Institute (USA), Shanghai Institutes for International Studies (China) and EU Center (Singapore). As a Fulbright scholar, he also cooperates with NYU, Columbia University and Harvard Business School. He has consulted for international organizations, government agencies, financial institutions, MNCs, industry associations, chambers of commerce, and NGOs. He serves on media advisory boards (Fortune, Bloomberg BusinessWeek, McKinsey).

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