Phl to benefit from US-China trade war

The escalation of trade tension between China and the United States will not have as large an impact on the Philippines than other economies in the ASEAN region, UBS Investment Bank said yesterday.

The investment banking giant said the Philippines is even shaping up to be an attractive investment destination for Chinese companies engaged in automobile manufacturing, electronics, and business process outsourcing (BPO).

In a new report, UBS said it has revised downward its 2018 and 2019 growth projections for most economies in the ASEAN region in line with the lowering of growth projections in China and the US because of the imposition of steep tariffs on selected imports both ways.

It maintained its growth projection of 6.8 percent for the Philippines in 2018, but lowered its 2019 growth target to 6.4 percent from the previous forecast of 6.6 percent.

The lowering of the growth forecast for the Philippines was still slower compared with more open economies in ASEAN such as Singapore 2.2 percent in 2019 (from 3.2 previously), Thailand (3.3 percent in 2019 from 3.8 percent previously) and Malaysia (4.2 percent in 2019 from 5.1 percent previously).

“We now believe an escalation of US-China trade tensions with a meaningful fallout on growth is more likely than not,” said UBS economist for ASEAN Alice Fulwood in a teleconference Wednesday. “The trade war has a much bigger impact on other countries in ASEAN than in the Philippines.”

UBS has revised downwards its 2018 growth forecast for China to 6.5 percent from 6.6 previously and its 2019 growth forecast to 6.2 percent from 6.4 percent previously. For the US, it sees a lower growth rate of 2.9 percent for 2018 from the previous forecast of three percent and likewise a lower growth rate of 2.8 percent in 2019 the previous 3.2 percent forecast.

The bank sees the ASEAN region hit by the escalation of the trade war between the two superpowers in three ways: the impact of US tariffs levied globally, reduced aggregate demand in China, US, and even European countries, and the realignment of investments in the supply chain.

Faced with rising tariffs in its Western markets, China would be looking into diversifying the market for its goods and improving its production strategy to remain competitive. The UBS reports that the ASEAN region is fast becoming a popular investment destination for Chinese companies, while the US companies are still focused on expanding in China rather than South Asia.

“Chinese firms might want to relocate to other destinations in ASEAN and the Philippines is an attractive destination. And that will be a positive effect,” Fulwood said.

The report said Chinese FDI into ASEAN may provide support for weakening exchange rates.

“Chinese firms are now looking aggressively at Southeast Asia,” said Fulwood, noting the Philippines stand to attract investments in car manufacturing, electronics, BPO and other small and medium-sized industries.

“The Philippines has strength in service industry. They are also familiar with BPO in the Philippines,” she added.