SUPPLY CHAIN disruption in China caused by the outbreak of coronavirus disease 2019 (Covid-19) have the potential to disrupt up to $300 million worth of Philippine manufacturing exports, a United Nations Agency said.
According to an analysis from the United Nations Conference on Trade and Development (UNCTAD) released Thursday, a 2% reduction in intermediate inputs from China will affect $115 million worth of subsequent Philippine exports of communication equipment, $77 million in office machinery, $42 million in electrical machinery, and $22 million in automotive products.
The disruption in world trade could mean a $50 billion decline in global exports overall, UNCTAD said.
“In addition to grave threats to human life, the coronavirus outbreak carries serious risks for the global economy,” UNCTAD Secretary-General Mukhisa Kituyi said.
“Any slowdown in manufacturing in one part of the world will have a ripple effect in economic activity across the globe because of regional and global value chains.”
The worst-hit economies are the European Union ($15.6 billion), the US ($5.7 billion), and Japan ($5.19 billion).
The report said that around 20% of global trade consists of intermediate products from China.
“China’s rising importance in the global economy is not only related to its status as a manufacturer and exporter of consumer products. China has become the main supplier of intermediate inputs for manufacturing companies abroad.”
As China’s factories temporarily close and the movement of people restricted in an effort to contain Covid-19, reduced parts supply from Chinese producers has been affecting global output.
“For many companies, the limited use of inventories brought by a lean and just-in-time manufacturing process would result in shortages that will impact their production capabilities and overall exports,” according to the report.
The 22-point February decline in the China Manufacturing Purchasing Manager’s Index (PMI) translates to a 2% annual decline in the supply of intermediate goods.
Semiconductor and Electronics Industries of the Philippines, Inc. (SEIPI) president Danilo C. Lachica said in a mobile message Monday that the industry is concerned about supply chains as the outbreak further impacts countries outside of China.
“Hong Kong is already part of our hot area. We are concerned about South Korea and Taiwan,” he said.
Mr. Lachica has said the industry may lower its 2020 target of 5% export growth as factory closures in China could lead to a slowdown in electronics parts exports to that country.
Merchandise exports to China, according to the Philippine Statistics Authority, accounted for 13.7% of the value of total Philippine exports or $9.63 billion in 2019. Imports from China made up 22.9% of the total, or $24.5 billion.
Electronics exports accounted for 57% by value of total Philippine merchandise exports last year.
Of the $40 billion in Philippine electronics exports last year, 2.3% or $916 million are communications and radar products, 1.7% or $713 million are office equipment, and 0.4% or $156 million are automotive electronics.
China’s slowdown, the report said, also impacts the Philippines by $17 million in various machinery, $17 million in precision instruments, $7 million in chemicals, $2 million in metals and metal products, and $1 million each in leather products, rubber and plastics, and wood products and furniture.
UNCTAD said that the overall effects of the outbreak will become clearer as more data becomes available.
“The estimated global effects of Covid-19 are subject to change depending on the containment of the virus and/or changes in the sources of supply.”
Covid-19 has infected more than 92,000 worldwide and killed more than 3,200 people, according to the World Health Organization (WHO).
Separately, Nomura Global Research slashed its 2020 gross domestic product (GDP) growth projection for the Philippines to 6% from 6.4% previously to account for the impact of the outbreak on tourism.
In an update to its report “Anchor Report: How the Coronavirus Covid-19 will impact the world economy” published Thursday, Nomura said the Philippine economy will likely expand by 5.1% in the first quarter with a “more material impact” likely being felt in the first three months of the year.
However, this is expected to bounce back to 6% levels starting in the second quarter, to about 6.1%, lower than its earlier projection of 6.5%.
“In our new base case, we cut further our 2020 growth forecast to 6% from 6.4% (for the Philippines), which now only represents a slight improvement from 2019’s 5.9%,” according to the report.
The government targets 2020 GDP growth of 6.5-7.5%.
It noted that China and South Korea account for 21.1% and 24.1% of Philippine tourist arrivals, respectively.
For the third and fourth quarters, Nomura maintained its previous forecasts of 6.5% and 6.4%, respectively, as it expects a rebound in the second half driven by fiscal stimulus to boost public consumption, particularly infrastructure spending.
The report also downgraded growth forecasts for the global economy to 2.7% from 3.1% previously, China to 5% from 5.5%, Hong Kong to contract by 2.3% from the previous 1.1% projected decline, Singapore to be stagnant at 0% from growth of 0.3% , South Korea to 1.4% from 1.8% and Thailand to 1.4% from 1.9%.
The projections assume that China’s lockdown will only last until this month while the outbreak spreads in several countries to the point where the World Health Organization declares a pandemic.
“The most effective immediate policy response is not monetary or fiscal policies; it’s health security controls. If health security controls fail to contain the spread of Covid-19, financial markets may soon have to accept that a global recession is a forgone conclusion,” it said. — Jenina P. Ibañez, Beatrice M. Laforga