BSP wary of second round effect of China slowdown

The Bangko Sentral ng Pilipinas (BSP) is wary about the “second round” effect of the economic slowdown in China over the past five years on the Philippines.

BSP Governor Amando Tetangco Jr. said the slowdown of the Chinese economy is not expected to have a direct impact on the country’s gross domestic product (GDP) growth.

However, he pointed out the slowdown in China would affect the economy of the major trading partners of the Philippines.

“So, while the impact on our GDP may not be strong and direct, the second-round effect through the other trading partners bears watching,” Tetangco said.

Euromonitor International reports that 10 jurisdictions most at risk from a hard landing in China include Hong Kong, Taiwan as well as large economies like South Korea, India and Japan.

Euromonitor International also said the four biggest economies of the Association of Southeast Asian Nations (Asean) including Indonesia, Malaysia, Singapore, and Thailand plus Vietnam are at risk from the economic slowdown in China.

“While the Philippines is not among those listed in the Euromonitor International study, it is significant to note that almost all those countries listed are important trading partners of the Philippines,” Tetangco said.

The slowdown in China’s GDP growth would translate to a two-percentage point impact on the economies of Japan and Indonesia and above 3.5 to 4.5 percentage points impact on Vietnam, Taiwan, and Hong Kong.

Tetangco said China is an important trading partner and has been the third major export market of the Philippines since 2011, with an average share of about 12 percent from 2010 to 2014.

The country’s exports to China reached $8.5 billion or 13.6 percent of total merchandise exports in 2014.

China’s GDP growth has been decelerating over the past five years to 7.4 percent in 2014 from 10.6 percent in 2010.

The International Monetary Fund (IMF) sees China’s GDP growth declining further to 6.3 percent in 2016 from about 6.8 percent in 2015. Furthermore, Tetangco said slow Chinese growth could lead to lower global demand for commodities, including oil, which could in turn be a positive for reducing overall domestic inflation pressures.

“There are other areas wherein our economy may be adversely impacted. And let me just highlight two for now -- tourism and remittances,” he said.