Businesses worry more about Duterte gov’t than novel coronavirus

Ralf Rivas
Numbers seem to say that the impact of the novel coronavirus on the economy is, so far, minimal. But this does not appease the jittery business community.

MANILA, Philippines – The novel coronavirus has caused most stock markets in Asia, including the Philippines’ local bourse, to bleed.

Year-to-date, the bellwether Philippine Stock Exchange index (PSEi) has dropped to a 52-week low of 7,129, well within bear territory and far from optimistic forecasts. This means that if you bought stocks at the start of 2020, priced at almost 7,800 each, you have lost over 8% of your investments.

While the stock market is not totally indicative of the economy’s health, it does tell quite a lot about business sentiment. So far, it seems that sentiment does not go with some of the numbers.

Analysts and even the government’s economic team have all been somewhat unanimous in saying that while the impact of the novel coronavirus is hard to price in, the economy, so far, can take the hit.

The Philippines is also a domestic consumption-driven economy, which means that the economy is not very reliant on trade to grow. Trade-driven economies like China have taken a direct hit on both the lingering trade war and the spread of the coronavirus.

So why are investors still fleeing the Philippines?

It seems that more than the virus, businesses are getting more worried over the political climate under the Duterte administration.

“Investors are definitely worried and they are waiting for decisive action from the government to contain the virus. But remember this is not the only thing that investors are worried about, there’s lots of domestic developments too,” said Jun Calaycay, chief of research of Philstocks.

With no clear gameplan and a credible, assuring tone in containing the virus, the business community is more jittery.

Business as usual?

Strictly looking at the numbers and somewhat excluding all other factors, the Philippine economy is perceived to be surviving the novel coronavirus.

All the market experts and economists whom Rappler was able to interview agree that the economic impact is “minimal,” provided that the situation does not escalate further.

Carlo Asuncion, Unionbank’s chief economist, said that the tourism and trade sectors will be the most affected.

“In 2010, the PSA [Philippine Statistics Authority] put the average foreign tourist spend at $84/day, and last year, tourists visiting from China were approximately about 1.5 million. Thus, the Philippines may stand to lose a minimum of $126 million worth of foreign tourist spending this 2020 as the coronavirus scare continues to sow fear in the short-term,” Asuncion said.

“People-movement-related businesses may also lose in the short-term as people tend to stay rather than roam around risking unnecessary exposure to the largely unknown disease.”

If the novel coronavirus delivers a “severe, but temporary impact” or an outbreak lasts 6 months, Unionbank’s economic research unit expects Philippine full-year economic growth to decline at least 0.3% to at most 0.8% in 2020. 

Calaycay added that while the overall economy remains robust, he warned that flight restrictions and cancellations have a “spillover effect.” 

“It does not end in flights and tourism. There are jobs not necessarily related to these sectors but are dependent or somewhat connected to them, so we need to watch out for that as well,” Calaycay said.

Meanwhile, ING Bank Manila chief economist Nicholas Mapa noted that the warm ties between the Philippines and China mean that Duterte also inherits Beijing’s problems.

“When China sneezes, the Philippines catches a cold and picks up a cough given recent developments in economic ties,” Mapa said.

China is currently the Philippines’ top trading partner. Exports to China from January to November 2019 improved 6.3% to $8.8 billion, from $8.3 billion during the same period in 2018, according to PSA. Over 56% comprised electronic parts.

Mapa estimated losses to hit as high as $600 million due to the slowdown in tourist arrivals, effectively hitting overall consumption from retail sales, restaurants to hotels. (READ: Duterte expands ban on travelers from China, Hong Kong, Macau over coronavirus fears)

“Another possible hit would be the restricted movement of Chinese to and from the mainland, with POGO [Philippine offshore gambling operators] workers not able to return or incomes curtailed by the slowdown in business,” Mapa said.

Meanwhile, Rizal Commercial Banking Corporation economist Michael Ricafort noted that consumers can expect lower oil prices due to the coronavirus outbreak.

He noted that global crude oil prices have already declined to a new 3-month low, which is already lower compared to the levels during the US-Iran tensions in early January 2020. The decline is due to the anticipation for lower global oil demand for oil especially in China, which is the world’s biggest oil importer.

While economists have estimated the impact to be minimal so far, the novel coronavirus scare is fueling the business community’s jitters.

“For as long as uncertainty hangs over the Philippines, we can expect anxiety to weigh on the economy the same way a cold or cough curtails all of us. For the most part, we can still operate as business as usual, albeit stopping from time to time to wipe our noses or cough into a tissue,” Mapa said.


The presence of the novel coronavirus in the Philippines comes at a time where Duterte has weaponized contract reviews, seen by some as a move to favor allied businessmen. 

The elite, not used to attacks by a strongman, were quite unsure about how to handle such a scenario they never saw coming.

Duterte’s rants against Ayala-led Manila Water and Manny V. Pangilinan’s Maynilad has sent stock prices so low, the market has not seen such prices in over a decade.

Earlier this week, investors were somewhat given a boost when Enrique Razon, a perceived ally of Duterte, took a slice or 25% of Ayala’s Manila Water. After the announcement, euphoric investors pushed stock prices back in the green.

“Yes, it somewhat calmed down the market. But it is still bad for the business environment overall. Does this mean that the whole contract review is all over? It does not feel right,” said an analyst who requested anonymity.

The business community is also awaiting the fate of the Lopez’s ABS-CBN, as well as keeping a close eye on the economic impact of Taal Volcano, and the reported cases of African swine fever outside Luzon.

Prior to these negative developments, the Duterte administration has already started to show signs of having difficulty attracting investors.

Foreign direct investments (FDIs) fom January to September 2019 posted $5.1 billion only, down nearly 37% compared to the $8.1 billion recorded in the same period in 2018. This brings the net FDI inflows for the 9-month period to only $5.12 billion down by nearly 37% compared to the $8.11 billion recorded in the same period in 2019. (READ: [OPINION | Point of Law] Challenges in business that cannot scare us)

Hot money or portfolio investments also showed weakness, as it saw a net outflow of $1.9 billion last year, according to the Bangko Sentral ng Pilipinas. This is a turnaround from the inflows of $1.2 billion in 2018. The BSP projected portfolio investments to register inflows worth $8 billion last year.

How soon can we see the impact of all these uncertainties? 

University of Asia and the Pacific economist Victor Abola said in a recent press briefing that in general, there is a “lag” before the real impact of uncertainties can be felt.

“Real effect can be felt after a year or so. For the current year, plans are there already and people will not stop executing plans because of certain negative actions,” Abola said.

After missing its growth targets and struggling to attract more investors, the government now has the additional task of stemming the domino effect that the new virus has triggered. –

Ralf Rivas

A sociologist by heart, a journalist by profession. Ralf is Rappler's business reporter, covering macroeconomy, government finance, companies, and agriculture.