AS FORECASTS evolve that the global economy may risk getting into a recession this year, remittances and foreign direct investments (FDIs) to the Philippines could take a punch from the coronavirus pandemic-driven economic weakness.
Emilio Neri Jr., lead economist at the Bank of the Philippine Islands (BPI), said the growth of remittances, a major driver to the country’s consumption-led economy, are at risk this year.
“Remittances and FDIs may struggle this year given the possibility of lower growth in major economies,” the economist told SunStar Cebu.
“China has a strong connection with the rest of the world. Major sources of remittances and FDIs like the US, Japan, Germany and South Korea rely on China for their own growth,” he said.
Even if the amount of remittances and FDIs the Philippines has been receiving from China is relatively small, Neri pointed out that the novel coronavirus “may indirectly affect these two.” The novel coronavirus triggered a huge drop in global oil prices recently. The country may benefit from this as it could eventually pull down inflation.
However, Neri said low oil prices may also hurt remittances in the long run as this could lead to the displacement of Filipino workers in the Middle East, which is major oil producer.
With almost 120,000 cases and 4,300 deaths, the novel coronavirus outbreak has created a lot of uncertainties that could severely hurt the global economy.
“Even those countries with strong fundamentals are not safe from the fallout brought by the disease. However, quantifying its impact has been difficult since it is a black swan event, or something that doesn’t happen normally,” the BPI analyst said.
Economic activity in China has been disrupted given the extreme measures that the Chinese government implemented to control the spread of the virus, including the temporary closure of factories.
As a result, China’s economy may slow down or even contract in the first quarter.
“A huge decline in China’s gross domestic product growth will definitely hurt other countries since many depend on their exports to China. At the same time, China is a major supplier of goods and raw materials to other countries,” Neri said.
Disruptions in production in China may cause damage to global supply chains and increase the cost of goods.
China is a major trading partner of the Philippines.
Around 30 percent of the Philippine exports go to China and Hong Kong, and 30 percent of imports to the Philippines also come from the same country.
“If demand from China declines, our exports may suffer and dollar inflows may decline,” he said.
Lower supply of goods from China may push up inflation.
Local companies may need to source their raw materials from other countries which could be more costly.
Aside from trade, tourism, the most vulnerable industry, has been reeling from the impact of the widespread travel restrictions, expecting incomes to significantly decline this year.
“China and South Korea are the top two sources of tourists for the Philippines, accounting for 45 percent market share in arrivals in 2019. Tourism is a major component of the economy with around 12 percent share, according to the Philippine Statistics Authority,” he said.