PH less vulnereable to China slowdown
Credit to Author: ANNA LEAH E. GONZALES| Date: Wed, 23 Jan 2019 16:19:02 +0000
The Philippines has limited exposure to China’s growth slowdown even as it starts to affect economies in the region, London-based research firm Capital Economics said.
In a report on Wednesday, Capital Economics gave the Philippines a vulnerability score of 9 out of 20.
Five factors were used to measure the score. These include the volume of exports to China, export mix, financial exposure, and capacity for policy response.
“Weaker growth in China is already weighing on exports from the rest of Asia, and a further slowdown in the economy is one of the biggest risks clouding the outlook for the rest of the region. A slump in China would hurt economies with close trade links, notably Taiwan and Vietnam, while commodity exporters would also be hit hard,” Capital Economics said.
Among the five factors, the Philippines’ highest score (3 out of 5) was in financial exposure and capacity for policy response.
“A slump in China would almost certainly involve a rise in loan defaults for banks that have lent to companies in China. But within Asia, only banks in Hong Kong and, to a lesser extent, Singapore have any sizeable exposure to the Chinese market. Instead, the biggest impact could be through contagion. As such, the economies that are hit hardest through the financial channel could be those that are most vulnerable to capital outflows, namely Pakistan, India, Indonesia and the Philippines,” it said.
The research firm however warned that a shift in investor sentiment against the region could also pose problems for India, Indonesia and the Philippines. The report said Hong Kong, with a vulnerability score of 16 out of 20, is the most vulnerable to the slowdown.
“Due to its deep trade and financial links and limited scope for a policy response, a hard landing would cause the territory to fall into a deep recession. The region’s two main commodity producers, Malaysia and Indonesia, would also be at substantial risk. Relatively closed economies like India and the Philippines would have limited exposure to a Chinese slowdown,” said Capital Economics.
“The extent to which a sharp slowdown in China causes growth in the rest of the region to slow will also depend on the degree to which policymakers can loosen policy.
Inflation is currently low across most of Asia, which means policymakers will be able to cut interest rates and loosen fiscal policy to cushion demand. One country that stands out with limited scope for policy action is Hong Kong, which has a fixed exchange rate and where domestic interest rates are determined by the US Fed,” it added.
Growth in China slowed to 6.4 percent year on year in the final quarter of last year, down from 6.5 percent in the third quarter and 6.8 percent in 2017.
“Our China Activity Proxy (CAP), which is our attempt to track the pace of growth in China without relying on the official GDP figures, suggests that the economy slowed to around 5 percent year on year towards the end of last year,” Capital Economics said.
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