THE Bangko Sentral ng Pilipinas (BSP) policy rate cut and a front-loading of the government’s infrastructure spending will ease the pain caused by the novel coronavirus disease (Covid-19) on the economy, according to a local think tank.
In its latest Market Call report, First Metro Investment Corp. (FMIC)-University of Asia and the Pacific (UA&P) Capital Markets Research acknowledged that the virus will significantly affect the first semester of the year.
However, FMIC-UA&P Capital Markets Research said the extent of the impact of the virus on the economy could be determined at this time.
“Positive prints in employment and inflation, and a 50-bps [basis points] cut in policy rates by the BSP should offset some of the output loss,” FMIC-UA&P Capital Markets Research said.
“In addition, front-loading of infrastructure and government spending should also ease the pain. We see a V-type of recovery as soon as the spread and fatality rates of the virus clearly decelerate,” it added.
The local think tank also said part of the economy’s palliative care is the government’s efforts to closely monitor the country’s supply sources.
The government, it added, must extend incentives to develop alternative supply sources needed to help firms secure supplies needed for the fight against Covid-19.
FMIC-UA&P Capital Markets Research fear that without these efforts and the deaths of more Filipinos due to Covid-19, the negative impact of the virus on the second semester would be worse.
“While we feel more optimistic for H2 [second semester], this may vanish if the virus’s spread and death toll do not significantly ease,” the think tank said.
“The drag of Covid-19 on Philippine GDP growth is certain, especially in H1 [first semester]. But the extent of output and employment loss is extremely difficult to quantify as this would depend on how long and how devastating the pandemic would terrorize people, countries and governments,” it added.
Oil-price declines
The think tank also said inflation could slow down further given the 33-percent plunge in crude oil prices, particularly for West Texas Intermediate and Brent crude in March.
FMIC-UA&P Capital Markets Research said the US Energy Information Administration expects further oil price declines until June 2020.
These, the local think tank said, would compensate for higher inflation caused by supply chain disruptions owed to the spread of Covid-19.
“With the input supply disruptions, it seems fairly unclear if exports can sustain the good performance experienced in January. Nonetheless, with the sharper drop in imports, net exports of goods and services will be a bit more positive than in past quarters,” it added.
Earlier, the Department of Finance announced a P27.1-billion package to finance efforts to fight Covid-19.