HSBC sees Philippine economy contracting 9.6%
British bank HSBC projects that the country’s economy will likely contract by 9.6% this year due to the increasing number of COVID-19 cases. This figure is lower than their initial forecast of a 3.9% decline for the year. HSBC economist Noelan Arbis added that the absence of a stimulus package will also likely dampen the country’s recovery in 2021. The Philippine economy contracted by 16.5% in Q2 2020 and 0.7% in Q1 2020, putting the country into a technical recession, or two consecutive quarters of contraction. The stringent lockdown implemented by the government in August has also curtailed the recovery of household spending, which also contracted by 15.5%. Meanwhile, HSBC expects the country to recover by 5.7% in 2021.
The country’s economic managers have revised their economic outlook for the year and they now expect the economy to contract by 5.5% from their initial forecast of a 2-3.4% decline. In the property sector, the pandemic has caused developers to cut their capital expenditures and delay their project launches for the year. In Metro Manila, we saw subdued demand from the office sector with vacancy rising to 4.9% in Q2 2020 from 4.1% in Q1 2020. Meanwhile, vacancy of condominium units in Metro Manila also rose to 11.8% from 11.3% in the previous quarter. With the weaker than expected Q2 2020 GDP, government agencies and credit rating firms are now projecting the country’s economy to contract between 1% to 9.6%. Despite this, some government agencies and multilateral firms are projecting growth of between 6% and 8% in 2021. In our opinion, this should support demand for office spaces and residential units. Colliers believes that various stimulus packages likely to be implemented by the government for the remainder of the year should have a positive impact on the economy and we see these benefitting key segments including property. These should complement monetary easing from the central bank and low interest rates.
Tourist arrivals, receipts plunge
Data from the Department of Tourism (DOT) showed that tourist arrivals and receipts for 7M 2020 declined by more than 70%. Arrivals dropped by 73% to 1.3 million from the 4.64 million arrivals recorded in 7M 2019. Tourist receipts also plummeted by 72% to PHP81 billion from PHP289.28 billion in the same period last year. DOT Undersecretary Benito Bengzon Jr. is optimistic that domestic tourism will likely stimulate demand once the quarantine restrictions are relaxed. A survey conducted by DOT showed that about 77% of Filipinos are willing to travel without a vaccine. Meanwhile, DOT is also developing travel bubbles in areas where there are minimal cases of COVID-19 which can stimulate domestic tourism.
The travel restrictions implemented by the government due to the COVID-19 pandemic have adversely affected the hotel sector. In H1 2020, hotel occupancy rates in Metro Manila dropped to 25%, from 71% in 2019. Colliers believes that the tourism department’s plan of implementing bubble tourism in some tourist destinations such as Bohol, Siargao and Baguio will likely benefit the sector given the pent-up demand from domestic tourists. Due to lower foreign arrivals, Colliers sees average daily hotel rates declining by about 20-30% in 2020 compared to pre-lockdown rates. Colliers encourages hotel operators to comply with the health and safety protocols implemented by the health and tourism departments to ease guests’ concerns. We also believe that operators should utilize technology such as smart room controls, mobile concierge and keyless check-ins to prevent the transmission of virus.
Retailers going online surge
The Department of Trade and Industry (DTI) has observed a significant increase in the number of registered online retailers in the country since the start of the community quarantine in March. DTI Assistant Secretary Jean Pacheco said that there are more than 68,000 businesses registered online as of August 11. DTI also expects a huge opportunity for Philippine businesses in online retailing amid the pandemic. DTI also reported that total retail sales are valued at USD63 billion (PHP3 trillion), with e-commerce accounting for about less than 4% at USD2.4 billion (PHP117 billion). A study by Google also reported that e-commerce will likely rise from USD7 billion (PHP342 billion) in 2019 to USD25 billion (PHP1.2 trillion) in 2025.
Colliers believes that the implementation of a lockdown amid the COVID-19 pandemic will likely redefine the retail sector. The limited mobility is likely to accelerate shift from offline t online shopping. In Q1 2020, vacancy of malls in Metro Manila reached 10% from 9.8% in Q3 2019. Due to the implementation of physical distancing and subdued consumer confidence and purchasing power, we see retail vacancy rising to about 12% in 2020. The subdued demand is likely to result in a slower take up of retail space across Metro Manila. As part of the new normal in retail, Colliers encourages brick-and-mortar retailers to tap the demand by expanding their online presence. We expect these retailers to set up their own e-commerce websites, partner with e-commerce sites of mall operators or utilize social media platforms such as Facebook and Instagram. In our opinion, the growing popularity of e-commerce in the country should also be complemented by efficient delivery systems to capture the shift in consumer preferences.