Covid could cut GDP growth to 5.5-6.5%

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THE outbreak of the coronavirus disease 2019 (Covid-19), which began the fourth quarter of 2019, could cut Philippine GDP growth to as low as 5.5 to 6.5 percent this year, according to the National Economic and Development Authority (Neda).

Socioeconomic Planning Secretary Ernesto M. Pernia told reporters on the sidelines of a book launch on Monday in Pasay that the reduction could reach 0.3 percentage points if the impact of the virus lasts for six months, and 1 percentage point in GDP growth if the virus infects the economy for the whole year.

This means that if the government expects a growth of 6.5 to 7.5 percent this year, a full percentage reduction will cut GDP growth to 5.5 to 6.5 percent in 2020.

“It’s not going to be a good year,” Pernia said. “[The impact could reach 1 percentage point] if it [impact of Covid-19] will last until December but this is direct effect. Direct effect of tourism, travel, and trade, imports and exports. There are still many indirect effects.”

Pernia said the estimates only account for the direct effect of Covid-19 on the economy through reduced tourism, travel and trade revenues.

The assumptions include zero travel and tourism revenues from China, 10-percent reduction from tourists and travel from other countries.

“It’s not going to be a good year. [The impact could reach 1 percentage point] if it [impact of Covid-19] will last until December but this is direct effect. Direct effect of tourism, travel, and trade, imports and exports. There are still many indirect effects.”

Socioeconomic Planning Secretary Ernesto M. Pernia

Wider deficit

He added that given the impact of Covid-19 on the economy, there is a chance that the country’s deficit may widen to as much as 3.3 to 3.5 percent of GDP.

This, Pernia said, would lead to higher borrowings this year. The government aims to limit its deficit to GDP ratio to 3.2 percent between 2019 and 2022.

In February, the Department of Finance (DOF) said the Bureau of Customs (BOC) could see a reduction in its revenue collection due to lower total volume of imports.

The Neda chief said, however, the impact could be higher if indirect and multiplier effects are considered.

After an interagency meeting at the Neda on Monday, Neda Assistant Secretary for Policy and Planning Carlos Bernardo O. Abad Santos told the BusinessMirror that consumer spending in the country will take a hit, at least in the first half of the year, similar to other countries.

However, Neda National Policy and Planning Staff Director Reynaldo R. Cancio also told this newspaper that the effect will be temporary and could recover once consumer confidence returns.

“In the short term, this is going to be the reaction of consumers. Afterwards, based on experience from SARS, there was a temporary slowdown and it bounced back afterward,” Cancio said.

Neda recommendations

Abad Santos said the Neda is recommending that the ill effects of Covid-19 be addressed in three phases—safety for all; regaining consumer confidence; and building back better.

The only problem is, he said, there is no time line or timetable on when these can start or end given the volatile situation. In some countries, the spread of Covid-19 continues to rise while countries like the Philippines are lucky to only have a few cases.

“We still don’t know what’s going to happen. There are a lot of uncertainties,” Abad Santos told the BusinessMirror. “There is no timetable for this. At this point, we still do not know when it [spread] will plateau.”

He explained that “safety first” means treating Covid as a public health issue, prioritizing prevention and keeping all Filipinos “out of harm’s way.” This means lowering Filipinos exposure to the disease by developing protocols in reporting and encouraging proper hygiene.

The Neda official also said this means reducing gatherings; imposing “regulatory forbearance mechanisms” to prevent the further spread of the disease; and extending worker benefits that will help them cope with the ill effects of the disease.

Abad Santos said this includes joblessness which institutions such as the Social Security System (SSS) stand ready to address with unemployment benefits for members.

The second phase, he said, involves recovery and building business and consumer confidence in the economy. Abad Santos said once businesses and individual consumers are convinced that the situation is “safe,” they can resume their regular activities.

He said activities under this phase include boosting domestic tourism; government leading MICE activities; and retooling or retraining workers.

For the third phase, Abad Santos said “build back better” means looking back at the lessons learned from the impact of Covid-19. This also means encouraging investments in health kits, vaccines, establishing a disease control network or institutions, and promotion of health lifestyles, among others.

Last month, Albay Rep. Jose Sarte Salceda told reporters he is proposing to create the country’s own version of the United States Centers for Disease Control and Prevention (CDC) to monitor and address diseases like Covid-19.

Salceda said the new center will combine the functions of the Disease Prevention and Control Bureau (DPCB) and Epidemiology Bureau of the Department of Health (DOH).

He said, however, that the new independent agency will be given additional powers and functions as well as the necessary funding.

Salceda said creating a separate agency will also assure the public that the government has the appropriate institutions to handle medical emergencies such as emerging communicative diseases and pandemics.

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