Philippines can withstand impact of yuan slide – DOF

MANILA, Philippines - The Philippines should be able to withstand the impact of China’s yuan devaluation due to the country’s strong economy, Finance Undersecretary Gil Beltran said.

“The exit of portfolio investments will lead to a temporary slide in the peso, the PSEi (Philippine Stock Exchange index) and the local bond markets,” Beltran, chief economist at the Department of Finance, said in an e-mail.

“The markets will recover as the strength of the Philippine economy with its substantial current account surplus and fiscal space will offset the adverse impact of these activities,” he said.

The Philippines’ current account surplus hit a record high $12.6 billion in 2014, up from $11.4 billion in 2013. The current account surplus, an indicator of an economy’s health, shows a country’s exports and imports of goods and services, net income abroad, and net current transfers.

China’s intervention on its yuan came following the sustained growth slowdown in the world’s largest economy. Analysts believe the move could boost China’s trade activities and help lift economic growth.

“The uncertainties engendered by the CNY (Chinese yuan) devaluation is just a temporary phenomenon which will fade into the background as the Chinese economy tries to revive its economy in the face of slowdown,” Beltran said.

“The CNY devaluation will revive Chinese exports and this will benefit Philippine exports which are inputs to Chinese production,” he added.

China was the Philippines’ third largest export market last year following Japan and the US. The Philippines shipped $8.03 billion worth of commodities in 2014 to China, up 14 percent over 2013 levels.

At the same time, China was the Philippines’ largest source of imports last year with $9.57 billion.

Beltran further said while the Philippines would be able to easily shrug off the ill-effects of a China devaluation, other Asian countries especially those with stronger trade ties with China may be less fortunate.

“Some of our neighbors will not be as lucky. But since the fundamentals of Asian economies are relatively strong, they can easily bounce back from any slowdown,” Beltran said.

“Asian countries have accumulated adequate buffers that will enable them to ride through the storm,” he said.

Other Asian currencies fell from the shock of China’s devaluation and analysts cautioned a competitive devaluation may occur as economies strive to make their exports cheaper.

Bank of America Merrill Lynch, in a report late last week, noted concerns for the region stem from the fact that the devaluation came on top of China’s deflation and Asia’s sluggish exports.

The bank said the move contributed to the weakening of export competitiveness in Asia and also in key markets such as US and Europe.