https://www.rappler.

com/thought-leaders/251014-analysis-will-novel-coronavirus-also-
infect-philippine-economy

With the global spread of the novel coronavirus (nCoV) underway, many governments
are growing increasingly worried about the virus’ economic impact.

In the Philippines, President Rodrigo Duterte’s economic managers aren’t so worried.

Finance Secretary Carlos Dominguez III said, “We are a big enough economy that can
handle this thing. We are not going into recession because of it.”

Meanwhile, Socioeconomic Planning Secretary Ernesto Pernia played down nCoV’s

impact on tourism as “short-term.”

How bad will nCoV’s effects be? Some private sector economists predict Philippine
growth might fall this year by no more than one percentage point. Government
economists have yet to publish their own estimates.

In this piece let’s explore the various channels by which we might feel nCoV’s economic
fallout.

Global spread

Let’s start with the big picture. By all indications, it seems China will take the greatest hit
from nCoV.

Some Chinese economists expect that this quarter nCoV will cost their economy
about $60 billion and shave 2 percentage points off their economic growth.

Note that China’s growth already dropped last year to its lowest level in nearly 3
decades. China is also grappling with the effects of the trade war that US President
Donald Trump needlessly waged.

Oil demand in China has recently dropped, too, rattling oil exporting countries and
further stoking fears of an impending global economic slowdown. (At least you may
expect local gas prices in the Philippines to ease in the coming weeks or months.)
To avert macroeconomic collapse, the Chinese central bank already pumped $173
billion of additional liquidity into their economy.

Elsewhere in the world, stock markets took a hit amid heightened business jitters.

More importantly, experts foresee nCoV will have a more profound economic
impact worldwide than the 2002-2003 SARS outbreak.

With China today being the world’s largest economy and accounting for about a third of
global growth, economic trouble in China will invariably spell economic trouble for the
rest of the world.

The faster nCoV is contained, the better for all of us.

Trade

Here in the Philippines, the impact of nCoV hinges on our economy’s exposure to China
– which, as you may have sensed, has increased of late.

For starters, China today is the Philippines’ biggest supplier of imported goods. From
January to November 2019, as much as $22.6 billion worth of our imports came from
China. That’s 22.7% or more than a fifth of the total value of imports 

Our exports to China are sizable, too: over the same period China bought $8.8 billion
or 13.6% of our exports.

With factories in China closing left and right, expect that Filipino consumers might have
a harder time buying some imported Chinese goods.

Our domestic manufacturing sector will also feel the pinch since Chinese factory
shutdowns are widely expected to disrupt global supply chains.

This means that if Chinese factories fail to produce enough parts and components like
brake pads or semiconductors, the production of cars and smartphones elsewhere will
contract.

The situation would be a lot less worrisome if only we didn’t depend so much on
semiconductors as a trading commodity. That is, if only we exported a more diverse
portfolio of goods to the rest of the world, we would be less susceptible to disruptions in
supply chains abroad – like the one nCoV is creating now.
But there’s a silver lining. Some China-based companies are considering locating or
focusing their operations outside China – including the Philippines.

Already, Ftech, which manufactures brake pedals for Honda in Wuhan, has opted to
produce more brake pedals in its Philippine factory.

If other China-based firms follow suit, this might inadvertently turn the nCoV outbreak
into an economic boon. But don’t count on it to boost domestic growth so much; we
have bigger problems on hand. (READ: Why did Philippine economic growth drop to an
8-year low?)

Flows of tourists, OFWs

Prolonged travel bans due to nCoV are also bound to hurt the inflows and outflows of
people, especially tourists and overseas Filipino workers (OFWs).

I noted before that the share of tourists from China has tripled from 2005 to 2018
(Figure 2). But with lockdowns, travel bans, and flight cancellations now in place, expect
the inflow of Chinese tourists to dwindle – at least momentarily.

The influx of Chinese workers and the expansion of new industries like POGO
(Philippine offshore gaming operations) might also be curtailed, what with the
recent quarantines ordered by government.

Remittances by China-based OFWs might also falter, especially if many of them can’t
return to China due to existing travel bans, or if they are laid off.

This will spell hardship for them and their families, but data suggest this won’t likely
have a significant dent on the economy at large, with remittances from China amounting
to just 3.2% of all land-based remittances worldwide in 2018 (Figure 3).

Face mask shortages

Zeroing in on specific markets, face masks are now in short supply despite the World
Health Organization’s reminders that the general public doesn’t really need to wear
them.

In basic economics, shortages signal that prices are too low. Shortages may be abated
or eliminated by allowing the price of face masks to go up.

Most people understandably decry price spikes in times of crisis. But there will, in fact,
be more face masks – and other related items such as hand gels or sanitizers –
available in the market if prices are allowed to adjust freely and seek their own level.
The last thing government will want to do now is impose price ceilings, which might only
induce more hoarding, stoke panic, and possibly worsen existing shortages.
Government could instead import lots of face masks, just as Duterte had
recently promised.

Better still, government ought to double its efforts to debunk the notion that healthy
individuals always need face masks in the first place.

When China sneezes

Finally, people have debated whether it’s fair to blame China (and the Chinese) for the
current nCoV outbreak.

On the one hand, China has objectively become a fertile source of infectious diseases
borne by animals and, hence, a hotbed of future viral outbreaks.

As pointed out in a recent scientific paper, this is because of the scale of livestock
production in China, coupled by massive urbanization and globalization there.

On the other hand, I’m not sure we could’ve significantly reduced our exposure to nCoV
by distancing ourselves from China.

In this uber-globalized world, we have to accept that when China sneezes we will all
likely catch a cold – literally and economically.

The question is, how can we minimize catching such cold? And when we do, how will
we recover and jump back on our feet as quickly as possible? – Rappler.com