THE PHILIPPINES is less likely to be affected by the trade war between the US and China compared with other more open economies in the region, but the dispute could still dampen growth prospects next year, UBS AG said.
In a media conference call, UBS economist Alice Fulwood said the Philippine economy is relatively resilient to the looming tariff war between the two major economies, but the disruption caused to trade could still weigh down growth for 2019.
UBS maintained its growth forecast for the Philippines at 6.8% this year, but slashed its 2019 estimate to 6.4% from 6.6% previously. This is significantly lower than the government’s 7-8% growth target.
“We now believe an escalation of US-China trade tensions with a meaningful fallout on growth is more likely than not,” UBS also said in a research note published last week.
“The more open economies of Singapore, Thailand and Malaysia see a more significant impact than the more closed economies of Philippines and Indonesia. Vietnam looks best placed to benefit from export market share gains.”
US President Donald J. Trump imposed tariffs on billions of dollars worth of goods brought in from China, particularly aluminum and steel items. China has retaliated with a 25% tariff on US soybeans.
Ms. Fulwood said the reduced forecast for the Philippines is the “direct result” of the potential impact of the trade war, and is less severe compared to downgrades for other Southeast Asian economies.
Singapore, which has a bigger exposure to the US and China, is expected to grow by 2.2% next year, down from the original 3.2% forecast. Malaysia’s growth is also projected at 4.2% from 5.1% previously.
UBS said manufacturers of cars, electronics and electric machinery may be affected by the US-China trade war, although the Philippines is “less exposed” to the global supply chain for these sectors.
Philippine inflation is estimated to average 4.7% this year, easing to 3.8% by 2019. These compare with a 2-4% target band of the Bangko Sentral ng Pilipinas (BSP).
UBS expects two more rate hikes from the BSP during its August and September policy meetings. If the forecast pans out, this will bring rates to 3.5-4.5% by year’s end following back-to-back increases in May and June.
“Higher interest rates can put downward pressure on the economy, but it will be resilient. We do not expect growth to slow too much,” Ms. Fulwood said.
The impact of the trade tensions may also be felt through the exchange rate. Ms. Fulwood said they expect tariffs to be met with a “risk-off” attitude against Asian currencies and lead to a stronger dollar.
UBS expects the peso to breach the P54 to the dollar level this year, and possibly weakening further to P56 next year. — Melissa Luz T. Lopez

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