THE PHILIPPINES is not likely to be negatively affected in the short to medium term by a possible economic slowdown resulting from the ongoing trade tensions between the US and China due to it solid fundamentals, though it may be affected by contagion from emerging markets, analysts said.
University of Asia and the Pacific (UA&P) economist Bernardo M. Villegas said that the economy will be less vulnerable to external trade tensions than other economies in Southeast Asia.
“Our economy is less vulnerable to global shocks,” he said on Tuesday during the 2018 Executive Series Forum in Pasig city organized by Manila Electric Co.’s MPower and Vantage Energy.
“Whenever there’s a crisis, the Philippines is much more resilient. Our weakness has become our strength. We are not export-oriented like our neighbors,” he added.
The UA&P economist said that exports only represent a 30% share of the Philippines’ overall economy, far less than Thailand’s 70%, Singapore’s 150%, and Hong Kong’s 200%.
Mr. Villegas said that during the 1998 Asian Financial Crisis, the Philippines was among the least affected economies in the region, with the economy only declining 0.6% that year, compared to Thailand’s 7.5% contraction and Indonesia’s 13% drop.
“In the 2008 Great Recession, the Philippines grew 1.1% but others were declining. We are resilient when there is a global crisis, we are the least affected,” he added, noting the country has built up its reserves to buffer the economy from external shocks, a young English-speaking population, and strong state spending for infrastructure.
“8% GDP (gross domestic product) growth is very doable. There’s no reason why the Philippines cannot target 8%, the ‘Build, Build, Build’ will not be something specific to Duterte. The next three presidents will have to do ‘Build, Build, Build’ because we are so behind,” added Mr. Villegas.
Chua Hak Bin, a Singapore-based senior economist with Maybank Kim Eng Research, meanwhile said in a separate forum yesterday that even with positives like “low public debt, external, debt, resilient GDP growth, and favorable demographics,” the Philippine financial markets are still vulnerable.
“I think it’s still vulnerable to contagion, and from the Fed tightening, the twin deficit position. The Philippines now is also dependent on external financing flows, so the current account deficit is widening,” he said
He said that the widening current account deficit, on top of the fiscal deficit capped at 3% of GDP, puts pressure on the peso to depreciate, which will contribute to inflation.
“We think that the Fed is going to stop at some point next year. It’s possible but a slowing Chinese economy is coming back to haunt the US economy,” Mr. Chua said.
He added that the government could slow down its infrastructure buildup by spacing out spending, to ease the spike in capital goods imports that weighed on the current account deficit, as well as on the budget deficit.
He said the peso is not helped by the US trade war with China, during which investors tend to pull out hot money from emerging markets in favor of safe havens, citing the case of Turkey, Venezuela, and Argentina.
Mr. Villegas meanwhile added that despite the potential slowdown in China, the Philippines still has strong domestic demand.
However Mr. Chua said that there could be a diversion of trade that could favor the Philippines amid the conflict between the US and China, as companies in those countries look for markets to source their import requirements.
“We hope that the Philippines would benefit, but most countries are talking about Vietnam, it always comes first and some automobile companies are talking about Thailand. So the Philippines doesn’t feature as much, but clearly there’s an interest in manufacturing investments,” said Mr. Chua. — Elijah Joseph C. Tubayan