THE PHILIPPINES is “relatively immune” to the impact of a potential slowdown in China due to a trade war with the United States, the central bank said.
However, it may not benefit from the relocation of industries out of China due to its limited competitive advantage.
“When we take a look at the sensitivities of, say, a slowdown in the Chinese economy because of trade wars between the US and China, the Philippines is actually relatively immune,” Bangko Sentral ng Pilipinas (BSP) Deputy Governor Francisco G. Dakila, Jr. said in the 3rd ASEAN+3 Economic Cooperation and Financial Stability Forum on Tuesday.
Mr. Dakila, citing an Oxford Economics report, said every percentage point decline in China’s gross domestic product (GDP) growth leads to a slowdown in Philippine GDP growth of just two basis points in 2024 and five basis points in 2025.
Economic managers trimmed their estimates for Philippine growth this year to 6-6.5% but widened the target band to 6-8% for 2025 to 2028.
In the third quarter, the economy expanded by a weaker-than-expected 5.2%, the Philippine Statistics Authority (PSA) said, indicating the need to grow by 6.5% in the fourth quarter to meet the lower end of the target range.
In addition, Mr. Dakila also called the Philippine predicament a “two-way challenge,” noting that industry is not poised to take advantage of the relocation of industries out of China.
US President-elect Donald J. Trump, who is set to assume office in January, has been threatening to impose 60% tariffs on Chinese goods.
“If we look at the comparative advantage of the Philippines, I think it’s mostly in the services sector. So that means Vietnam has been able to exploit much of the relocation rush. That is something that is not yet felt in the Philippines,” Mr. Dakila said.
The PSA said the service sector accounted for 65.8% of the total GDP in the third quarter.
He added that the BSP projects a balance of payments (BoP) surplus for 2024 and 2025, while describing the current account deficit to be “manageable.”
The BSP reported a BoP surplus of $3.526 billion in September, against $88 million in August.
The semiconductor industry, which accounts for 10% of the Philippines’ GDP, faces electricity and logistics constraints that affect the attractiveness of the Philippines for further investment, the Organisation for Economic Cooperation and Development said in a report.
Krishna Srinivasan, director of the Asia and Pacific Department at the International Monetary Fund, said trade tensions have risen significantly, with countries imposing around 3,000 trade restrictions in 2023, against 1,000 in 2019.
“These measures often provoke retaliatory actions. Indeed, IMF analysis shows that when countries are hit with tariffs or other protectionist measures, there’s a 74% probability that they will retaliate,” he said.
However, he said several ASEAN economies have found ways to capture export opportunities generated by Chinese and US tariffs, at least in the short term.
“What we find is that countries that were better integrated into global value chains and applied fewer FDI restrictions before 2018 have been especially successful in raising the exports of products targeted by US and China tariffs,” he said.
Mr. Srinivasan said countries that are better integrated and have fewer foreign direct investment restrictions have benefited from these trade restrictions between China and the US.
However he warns that in the short term, “some countries may benefit from the trade restrictions, but over the long run, any kind of fragmentation…leaves all of us in poor shape, and Asia in particular, which is highly integrated in global supply chains, risks losing more.” — Aubrey Rose A. Inosante
