Think tank sees limited Philippines exposure to China slowdown

MANILA, Philippines — The Philippines would have limited exposure to a further slowdown in the growth of the Chinese economy but may also be hit by a shift in investor sentiment in Emerging Asia, said London-based think tank,Capital Economics. 

In a regional report, the research firm said the region’s main commodity exporters, —Malaysia, Indonesia, Taiwan and Vietnam—would be at “substantial” risk but relatively closed economies like India and the Philippines “would have limited exposure to Chinese slowdown.” 

“A slump in China would hurt economies with close trade links, notably Taiwan and Vietnam, while commodity exporters would also be hit hard. A shift in investor sentiment against the region could also pose problems for India, Indonesia and the Philippines,” Capital Economics said. 

The Chinese economy grew 6.6 percent in 2018, the slowest in nearly three decades mainly because of  financial regulatory tightening to control shadow banking activities and off-budget investment by local governments; as well as the widening trade dispute with the US, which intensified the slowdown toward the end of the year.

Fourth quarter 2018 growth clocked in at 6.4 percent year-on-year, slower than the 6.5 percent in the third quarter of 2018. 

The expected weakening of imports from China is expected to lower commodity prices, hurting major exporters in the region, but benefiting big commodity importers like the Philippines as it would lead to a reduction in their import bills. 

“Global commodity prices would fall, since China is the world’s biggest consumer and importer for a range of commodities,” said Capital Economics.  

“The region’s main net commodity exporters, Indonesia and Malaysia, would be hit hard. But other economies might actually benefit through this channel, as their commodity import bill would shrink,” it added. 

The firm also cautioned against shockwaves through the financial channel even if only banks in Hong Kong and Singapore have sizeable lending exposure to Chinese companies. 

“Instead, the biggest impact could be though contagion. As such, the economies that are hit hardest through the financial channel could be those that are most vulnerable to capital outflows, namely, Pakistan, India, Indonesia, and the Philippines,” it said.