‘US-China trade war to have little impact on PH’
Credit to Author: ANNA LEAH E. GONZALES| Date: Thu, 27 Jun 2019 16:15:34 +0000
THE ongoing trade war between the United States and China will affect countries in emerging Asia, but its impact on the Philippines will be small, according to Capital Economics.
In a report on Thursday, the London-based research consultancy company said that so far, the overall impact of the trade war between the world’s top two economies “has been small for most countries.”
“For Malaysia, Singapore, Thailand and the Philippines, we think the net effect of the trade war so far will have been to knock only 0.1-0.2 percent from GDP (gross domestic product),” the report said.
It noted, however, that the Philippines would suffer the most once US President Donald Trump starts to punish companies who outsource jobs.
“The Philippines would be the biggest loser if Trump followed through on his threat to punish American companies that outsource jobs abroad,” Capital Economics said.
“The Philippines has a thriving business-process and IT (information technology) outsourcing sector, which last year brought in revenues equivalent to [about] 10 percent of GDP,” it added.
The report also said those hoping for “a breakthrough” out of an expected meeting between the American and Chinese leaders this weekend on the sidelines of the latest gathering of the world’s top 20 economies in Japan were likely to be “disappointed.”
“The upcoming meeting between Presidents Trump and Xi at the G20 (Group of 20) summit has raised hopes of a US-China trade deal but, as things stand, we think it is more likely that the trade war [would] ultimately escalate further,” it added.
“Our working assumption is that all US goods imports from China will become subject to a 25-percent tariff rate by early next year, with China likely to respond with some countermeasures.”
To cushion the impact, Capital Economics said policy easing could be done.
“Most governments in the region have loosened fiscal policy over the past year to help offset the drag from weak export demand. The strong fiscal position of most countries in the region means policy could be loosened further,” it said.
“A further escalation of the trade war would increase the likelihood of further monetary policy easing. So far this year, the central banks of India, the Philippines and Malaysia have cut interest rates,” it added.
In early May, the central bank’s policymaking Monetary Board slashed interest rates by 25 basis points (bps) the first time since a series of rate hikes last year. This resulted in overnight borrowing, lending and deposit rates to fall to 4.50 percent, 5.00 percent and 4.00 percent, respectively.
On June 20, the board decided to take a “prudent pause” on such easing and kept those rates as is.
Further easing is expected in all three countries, and in South Korea and Indonesia, Capital Economics said.
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