Downgrading GDP growth (COVID-19 impact)

PHILIPPINES - In Brief 03 Mar 2020 by Romeo Bernardo

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Since our quarterly outlook issued a little over two weeks ago, the Philippines has not reported new cases of the COVID-19 disease beyond the three cases detected at the time of our report (with one death). In the meantime, travel ban for inbound travelers from certain regions of South Korea has been imposed, alongside that for China and its administrative regions. With the virus spreading rapidly in different continents, the fear is that the virus is spreading undetected within the country. Analysts in the meantime have started to increase their estimates of the adverse impact of the COVID-19 on local growth with some shaving 0.3ppt off their original forecasts. (Chart 1)Chart 1Projection of 2020 Philippine GDP Sources: As above, compiled by Lazaro Bernardo Tiu & Associates (LBT)We think the impact would be larger. Our view is mainly based on what we’ve learned from experts who have tracked the virus’s spread and impact on China and the global economy. The IMF for instance has cut its GDP growth forecast for China by 0.4ppt based on the assumption that activities will return to normal by Q2, at the same time hinting of “more dire scenarios”[1]. The East Asian Institute, in a commentary co-written by a former World Bank Country Director for China, presented several worse case scenarios where full-year Chinese GDP growth averages anywhere from 2% to 5.6%, compared with a 6% baseline, depending on the sharpness of the slowdown in Q1 and the speed of subsequent recovery[2]. A McKinsey report[3] takes the analysis a step further, taking account of the virus’s global spread and its knock-on effects on confidence. The report presents three scenarios with the base case assumi...