COVID – 19 to impact on
Philippines growth-Capital
Economics
By Czeriza Valencia ( The
Philippine Star ) February 27,
2020)
NEDA Officials have
recognized that the travel and
tourism industry will take a
beating in the current
environment, standing to
loseP22.7 billion per month
including domestic airline
receipts.
MANILA, Philippines – administrative regions Hong
Despite being relatively
insulated from the effects of
the corona virus disease2019
(COVID – 19 ), the
Philippines will likely see
slower economic growth in
the first quarter of the year
primarily due to the virus
impact on tourism, London-
based think tank Capital
Economics said.
In a new research brief titled
“Assessing the impact so far,”
the macroeconomy research
firm said the Bangko Sentral
ng Pilipinas (BSP) is
expected to cut key rates
further this year after inflation
reached and eight-month
high of 2.9 % in January.
“The coronavirus outbreak
will weigh on growth this
quarter. The Philippines is
more insulated than most in
the region, but its tourism
sector will be hit hard.
Arrivals from China had been
growing strongly before the
virus.” the report said.
The BSP slashed its main
policy rate to 3.75 % early
this month as a preemptive
measure in response to
external headwinds that
include the global contagion.
“We think another cut is likely
over the coming months,’
Capital Economics said.
To curb the spread of the
novel coronavirus into the
country, the Philippines
imposed early this month a
ban on travellers coming from
China and its special
Kong and Macau.
A ban on travelers from a
hard hit South Korean
province is now also in effect.
The domestic economy
picked up by 6.4 % in the
fourth quarter of the 2019
from downwardly revised 6 %
in the third quarter of 2019.
Preliminary estimates of the
National Economic and
Development Authority
(NEDA) made earlier this
month showed that if the
coronavirus contagion
persists for one month at the
current pace, 0.06 % point of
the GDP will be impacted.
If the contagion extends up to
five months from now, 0.3 %
point of the GDP will be
affected.
If the present level of
contagion lingers on for 11
months, however as much as
0.7% age point of the
country’s economic output
will be affected.
These estimates were arrived
at assuming 1000 %
reduction on the number of
tourist coming from China
and 10% reduction on the
number of tourist coming
from other countries.
A full reduction of inbound
tourism from China shaves
off a quarter of the P450
billion spending of foreign
tourist in the country that
makes up 5% of GDP.NEDA
officials have recognized that
the travel and tourism
industry will take a beating in
the current environment
standing to lose P22.7 billion
per moth including domestic
airline receipts.
Travel and tourism- both
foreign and domestic –
makes up 12.7% of the
country’s gross domestic
product (GDP).
China and South Korea
which are the worst hit by the
contagion, are the two top
sources of tourist to the
country.
Surging Dollar Reflects the
Standout U.S. Economy
By Matt Philips
February 20,2020
The dollar is the strongest it
has been in nearly three
years as global investors
seek a safe haven. But that
can have unwelcome effects
for U.S. industries.
The dollar climbed to its
highest level in years this
week, a reflection of the
standout status of the
American economy against a
global backdrop clouded by
the coronavirus.
Pessimistic economic
updates from Japan, Britain
and Germany have only
added to the uncertainty
created by the coronavirus,
which all but idled China’s
economy for weeks.
The slowdown has stimulated
a rush into American stocks
and bonds, as global
investors exchanged their
currencies for dollars —
pushing the value of the
dollar higher — and then
used those dollars to snap up
financial assets.
“People are spooked by the
coronavirus, and the global
economy is weakening. It’s
struggling mightily,” said Bob
Schwartz, a senior economist
at Oxford Economics in New
York. “And whenever this
happens, you see a capital
flight into dollar-denominated
assets.”
The U.S. dollar index, which
measures the dollar’s value
against six currencies of
major trading partners, is up
more than 3.6 % this year,
pushing it to its highest level
since April 2017. It was up
0.2 %t on Thursday.
The dollar has risen more
than 1 %against China’s
government-managed
currency, the renminbi, in
February alone. For the year,
it’s up more than 3.5
%against the euro, 3
%against the yen and more
than 2.5 %against the British
pound.
Those regions have faced a
flurry of lackluster economic
results.
Official reports this month
showed that the British
economy flat lined during the
fourth quarter. A report last
week showed that the
Japanese economy shrivelled
at a 6.3 % annual clip during
the fourth quarter, in part
because of a tax increase.
And this week, survey data
about economic sentiment in
Germany tumbled anew, as
the country’s manufacturing
sector copes with the fallout
of the coronavirus outbreak in
China, a key customer for its
industrial goods and
automobiles.
“Currencies are weakening
on incoming bad data that
leads to inflows into dollar
assets,” wrote Ben Emons,
global macro strategist at
Medley Global Advisors.
While weakening foreign
fundamentals have pushed
money out of those markets,
the relatively high interest
rates in the United States
have exerted a magnetic pull.
Yields on U.S. Treasury
bonds — a benchmark for
measuring investment returns
— are quite low by domestic
standards, but they’re
downright generous
compared with global rates.
The yield on the 10-year
Treasury note was about
1.52 percent on Thursday,
trouncing the negative yields
of roughly 0.04 percent and
0.44 percent on 10-year
government bonds from
Japan and Germany.
(Negative yields effectively
mean that lenders are paying
borrowers for the privilege of
handing them money.)
The strengthening dollar can
be a boon for the American
economy: It helps lower the
costs of borrowing and
makes imports cheaper,
bolstering already strong
consumer sentiment.
But that dynamic can also
have negative
consequences. Despite the
country’s robust labor market,
business investment has
been shrinking and
manufacturing has struggled
since late 2018 — and a
strong dollar won’t help those
parts of the economy much.
American exports such as
aircraft, automobiles and
soybeans become less
competitive on global
markets as the dollar rises in
value. That, in turn, could
weigh on the industrial
manufacturers, from the
makers of farm equipment to
the factories that churn out
piping for oil and gas
extraction. A slowdown in
foreign economic growth will
also weaken overseas
demand for American-made
goods.

“There is no question that the
industrial side of the
economy continues to suffer
the effects of weak global
growth, the strong dollar,
tariffs and trade uncertainty,”
Mr. Schwartz wrote in a
recent client note. “Those
headwinds are not expected
to vanish anytime soon.”
Coronavirus Could Cost
the Global Economy $2.7
Trillion. Here’s How
By Tom Orlik, Jamie Rush,
Maeva Cousin and Jinshan
Hong
March 6, 2020, 11:00 PM
The coronavirus is going
global, and it could bring the
world economy to a standstill.
An epidemic that began in
the depths of China’s Hubei
province is spreading rapidly.
There are now significant
outbreaks from South Korea
to Italy and Iran, and the first
deaths have been reported in
America. The economic
fallout could include
recessions in the U.S., euro-
area and Japan, the slowest
growth on record in China,
and a total of $2.7 trillion in
lost output—equivalent to the
entire GDP of the U.K.
That’s the most extreme of
four scenarios developed by
Bloomberg Economics,
drawing on the experience in
China, the distribution of
cases in other countries,
estimates of risks to global
supply chains, and a large-
scale model of the global
economy.
With so many unknowns
surrounding the trajectory of
the epidemic, and the
response from government
and business, forecasters
cannot aspire to precision.
But these four scenarios offer
a way of tracing the potential
effects through countries and
industries, and assessing
their order of magnitude.
The starting point for our
analysis is what’s happening
in China, where automobile
sales have plunged 80%,
passenger traffic is down
85% from normal levels, and
business surveys are
touching record lows. The
economy, in other words, has
practically ground to a halt.
Bloomberg Economics
estimates that GDP growth in
the first quarter of 2020 has
slowed to 1.2% year on year
—the weakest on record. If
China doesn’t get quickly
back on its feet in March,
even that forecast could
prove optimistic.
Scenario 1: Major blow to
China, and spillover to rest of
world
For the rest of the world,
China matters as a source of
demand, a source of supply,
and a focus of concern for
financial markets:
► In 2019, China imports
came in at $2.1 trillion. From
Starbucks lattes to Yum’s
crispy fried chicken, sales in
China are a major earner for
multinationals. And Chinese
tourists staying home hits
everyone from South Asia’s
beach resorts to the
boutiques of Paris.
► China is the world’s
biggest producer of
manufactured components.
When Chinese factories shut
down, the widgets that go
into everything from Apple’s
iPhones to construction
machinery become harder to
find.
► The impact reaches small
businesses too. In Hong
Kong, a jewelry designer
found that his automated,
digitized Chinese suppliers
have gone offline. They could
churn out 1,000 rings in a
day. His workers just spent a
week hammering out a single
one. “I’m back into, like, pre-
historic jewelry making,” he
lamented.
► China shocks have spread
across global financial
markets before, including the
surprise yuan devaluation in
2015. The coronavirus is
repeating the pattern, and on
a larger scale, as equities
plunge around the world and
deliver knock-on blows to
household wealth and
business confidence.
If China can quickly get the
outbreak under control, and
the world’s factory rumbles
back to life in the second
quarter, then the impact on
the rest of the global
economy could be contained.
That’s a real possibility. A
survey by Made-in-
China.com—one of the main
platforms connecting Chinese
suppliers and global buyers—
found that by late February,
80% of manufacturing firms
had resumed operations. By
late April, says general
manager Li Lei, production
capacity should be back to
normal.
If that happens, a severe
shock in the first half would
be followed by recovery in
the second. For the world as
a whole, and major
economies like the U.S., the
impact would then be hard to
see in the full-year GDP data.
A month ago, an epidemic
confined largely to China,
with other economies
suffering from knock-on
effects but not their own
outbreaks, seemed like a
plausible base case. In early
March, with more than 6,000
cases in South Korea, closing
in on 4,000 in Italy, hundreds
in Japan, Germany and
France, and concerns
mounting in the U.S., it’s
starting to look optimistic.
It’s true that no other county
has anywhere near China’s
80,000 reported cases—and
that democratic countries
might balk at the containment
steps taken by China, which
locked down a province of 60
million. While a less
draconian approach could
potentially increase the
ultimate cost to public health,
it could also result in a
smaller short-term impact on
the economy.
Still, a lighting company
based in China’s Zhejiang
province illustrates how the
problem is changing shape.
The firm has more or less
overcome the domestic
shock: All workers are now
back at the factory. But now
they’re preparing to face a
different problem: Weaker
orders from overseas.
Scenario 2: Outbreaks cause
localized disruption
What happens if the problem
gets worse? In scenario two,
we assume that China takes
longer to return to normal—a
‘U’-shaped recovery instead
of a ‘V’.
“Even when factories are
back to work, it’s not like all
the problems are solved” said
Mr. Li, the Made-in-
China.com manager. “Many
factories don’t have enough
inventory… the supply chain
obstacles cap production
capacity.”
We also assume South
Korea, Italy, Japan, France
and Germany—the major
economies other than China
that have seen the most virus
cases—take a hit. In our
calculations, that takes global
growth for 2020 down to
2.3%—some way below the
pre-virus consensus forecast
of 3.1%.
Scenario 3: Widespread
contagion
Worse than that?
In scenario three, we layer on
a more severe shock to
South Korea, Italy, Japan,
France and Germany. And
we add a smaller shock to all
the countries that had
reported any cases as of the
start of March. That includes
the U.S., India, the U.K.,
Canada and Brazil—meaning
that all of the world’s 10
biggest economies suffer a
slowdown as they fight to
contain the domestic spread
of the virus.
In this scenario, global
growth for 2020 slides to
1.2%. The euro-area and
Japan go into recession, and
U.S. growth drops to 0.5%—
enough to see election-year
unemployment moving
higher.
Scenario 4: Global pandemic
Worse still?
To capture the economic
impact of a global pandemic,
we assume that all countries
in our model face a severe
shock—equivalent to the
drop in growth China is
suffering in the first quarter.
If that happens, global growth
for the year goes to zero. The
U.S. joins the euro-area and
Japan in contraction—
potentially changing the
dynamic of the presidential
election. China’s economy
expands just 3.5%—the
slowest in records back to
1980, when Deng Xiaoping’s
reforms were just getting
underway. Worldwide, lost
output hits $2.7 trillion.
China GDP
Quarterly year-on-year
forecasts
Other forecasters are also
sounding the alarm.
The OECD cut its expectation
for global growth to 2.4%
from 2.9%, and warned that it
could fall as low as 1.5%.
Goldman Sachs expects a
global contraction in the first
half of the year. Recent
forecasts for first-quarter
GDP growth in China range
from 5.8% all the way down
to -0.5%, underscoring the
high degree of uncertainty.
Policy research predating the
coronavirus outbreak
suggests there’s a downside
risk to even the most
pessimistic of these
forecasts. A 2006 paper by
the World Bank put the
potential cost of a severe flu
pandemic at 4.8% of global
GDP—a tailspin that would
rival that seen in 2009 after
the financial crisis.
Fed Funds Futures
Implied fund rates have taken
a nosedive since the
outbreak
All of that makes the case for
urgent rate cuts, extra public and higher spending will help
spending, or both. At an put a floor under fragile
emergency meeting on financial markets, and revive
March 3, the Federal demand once the crisis is
Reserve lowered rates by 50 over. In the heat of the
basis points, and markets outbreak, stimulus risks
expect more to come. That stoking inflation without
followed hard on the heels of accelerating growth—making
a G-7 conference call in the problem worse, not
which finance chiefs of the better.
major advanced economies
vowed to “use all appropriate Add on the world’s historically
policy tools to achieve strong, low level of interest rates,
sustainable growth and and high level of debt—which
safeguard against downside limit the room for maneuver—
risks”. and it’s clear why economic
policy makers, like everyone
At the epicenter of the crisis, else in the world, will be
the People’s Bank of China hoping the outbreak can
has so far been more rapidly be brought under
measured, cutting rates by control. Their own toolkit is ill-
just 10 basis points, and suited for the task.
instructing lenders to go easy
on stressed business
borrowers rather than adding
to the problem by calling in
bad loans. In neighboring
Korea, the central bank has
been similarly cautious—
calling an emergency
meeting, but failing to deliver
the rate cut the markets
expected. Governor Lee Ju-
yeol said he saw limits to
what monetary policy can do
to counter the virus.
That view might not win Lee
many friends among
investors. In the economics
textbooks, it has a solid
foundation.
The virus is at least in part a
supply shock—closing
factories, and forcing workers
to stay at home. That’s not
something policy makers can
do much about. Rate cuts