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Auto industry seen hardest hit by coronavirus outbreak

auto industry seen hardest hit by coronavirus outbreak 816x445 - Auto industry seen hardest hit by coronavirus outbreak

IHS Markit expects the automobile and auto-parts industry to be the most severely hit sector globally this year by disruptions caused by the outbreak of coronavirus disease 2019 (Covid-19), with the industry estimated to suffer a 4.4% drop in value added terms.

“The motor vehicles & parts industry will contract in most regions in 2020 — with the biggest declines seen in Japan, China, South Korea and the United States,” IHS Markit said in a note Thursday.

Other industries to be severely hit are the computer and electronics sector which is expected to take a 1.9% hit to value-added, while the impact on restaurants will be a fall of 1.3%.

IHS Markit estimated that global economy will likely expand by 1.7% this year, less than its previous estimate of 2.5% made in February.

According to its Global Output Index February 2020 data table, IHS Markit said only five out of 20 sectors studied posted growth in activity last month, led by the pharmaceuticals and biotechnology sector, other financials, real estate, software and services as well as telecommunication services.

Meanwhile, the sectors that contracted the most last month were automobiles and auto parts, metals and mining, chemicals, industrial goods, household and personal use products, transportation, as well as tourism and recreation.

“By 2021, all industry segments will see a return to growth. Regionally, Japan, the Euro area and Latin America show weakest growth across a range of industries,” it said.

Asked to comment, Rajiv Biswas, Asia Pacific chief economist of IHS Markit, said the tourism industry will be the most affected sector in the Philippines as it accounts for an estimated “12.7% of total GDP and 8% of total exports, as well as 13% of total employment.”

He said the “severe disruption” in the country’s tourism sector will likely drag on until the second quarter, at the very least, and could indicate possible temporary job losses, which official estimates by the government project at 30,000-60,000.

“Consequently the Philippine tourism industry will experience a significant economic slump during coming months, resulting in financial stress for many segments of the tourism sector, including hotels, restaurants, tour operators, retail stores and airlines,” Mr. Biswas said in an e-mail Thursday.

Domestic tourism could help mitigate the economic shock from the drop in international travel, he added.

However, Mr. Biswas said the domestic manufacturing sector has shown “considerable resilience” amid the pandemic, “with the composite indicator continuing to indicate expansion” in the sector, according to IHS Markit’s latest manufacturing purchasing managers’ index (PMI) survey.

The Philippine PMI index improved to 52.3 in February, the highest level in Southeast Asia last month, and outperforming other economies whose supply chains were disrupted more severely by the pandemic.

“With the Covid-19 epidemic increasingly hitting many other economies in Asia and in Europe, some moderation in new manufacturing orders from abroad is likely in coming months, until the epidemic is brought under control,” he added.

Mr. Biswas also warned that a slump in global financial markets could lead to “negative economic shocks” for the country as global investors shift to safer assets such as US Treasury bonds and “away from growth assets such as Asian emerging markets equities.”

“The negative investor sentiment is resulting in portfolio capital outflows from Asian emerging markets, at least in the short term, until the Covid-19 pandemic can be brought under control,” he said. — Beatrice M. Laforga

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