China economic downturn: Phl to be least affected – Moody’s

MANILA, Philippines - The Philippines should cope better than most its peers in the Association of Southeast Asian Nations (Asean) in case of a significant downturn in Chinese economic activity, Moody’s Investors Service said in a report.

“The headline data suggest that the Philippines would be the least impacted by a significant downturn in Chinese demand,” Moody’s said in a newsletter titled Inside Asean.

“Exports to China have actually diminished in terms of economic significance over the past decade. Instead, the Philippines’s growth story has been underpinned by robust domestic demand, which has in turn been fueled by structural reform and an upswing in the country’s credit cycle,” Moody’s said.

“The Philippines would feel some positive spillover impact from weakening Chinese demand, as lower commodity prices would serve to keep a lid on consumer prices despite the strength in domestic consumption,” it said.

Moody’s said Asean now faces risks tied to a drop in Chinese demand. “Looking ahead, Chinese demand is expected to soften as the mainland economy undergoes a process of rebalancing – characterized by economic restructuring, policy reform, market liberalization, and slower credit uptake – and the risk that this process could prove disorderly is rising,” Moody’s said.

The debt watcher added that if China’s economic growth would settle at a slower pace than its 6.5 to 7.5 percent projection for this year and the next, it would have a “significant” impact on Asean’s macroeconomic conditions.

“Asean is vulnerable to a pronounced growth correction in China... (as the) region’s trade exposure to China has increased rapidly in recent years,” Moody’s explained.

“On aggregate, Asean member countries exported 12.2 percent of their total outbound shipments to China in 2013, up from just 7.3 percent a decade earlier. As a result, China is now Asean’s largest trading partner, whereas ten years ago, it stood behind the United States, Japan and the European Union,” Moody’s said.

Moody’s said Singapore may receive the biggest impact in the region following a downturn in China’s growth, due to its export exposure to the world’s second largest economy.

Indonesia, meanwhile, will feel the effects of a slowdown in China through its commodity exports. Malaysia and Vietnam were also found to be at risk due to their export exposure to China.