The Philippines is expected to weather the slowdown in the US, Japan and Europe because of strong domestic demand and the projected remittances from overseas Filipinos.
Taking a look at emerging markets, Credit Suisse said the Philippines is expected to grow by 5.6 percent this year, being one of the small open economies in Asia that would enter the period of uncertainty with strong momentum in domestic demand.
According to Credit Suisse economist Cem Karacadag, China and Indonesia are least at risk to the slowdown in the so-called G3 economies with strong trade and financial relationships with other economies.
In its study, Credit Suisse said China and India are least exposed to the weakness in the G3 economies but countries such as Hong Kong, Malaysia, the Philippines and Singapore are being supported by strong domestic demand.
Credit Suisse said the Philippines is only at “some risk” together with India, Korea, Malaysia and Thailand, while Hong Kong, Singapore and Taiwan are considered “most at risk.”
The Philippines, in particular, is only “at some risk” despite its limited capacity for fiscal expansion especially when compared to Malaysia and Thailand.
“The Philippines’ export and growth exposures are manageable, in our view,” said Karacadag, adding that the country’s real gross domestic product (GDP) growth rate has tended to drop by 0.5 to one percentage point for ever one-point fall in the growth rate of G3 economies.
“However, the economy’s sensitivity to the G3 may be lower in 2008,” Karacadag said.
According to Credit Suisse, the growth in the country’s domestic consumption had been the least volatile in Southeast Asia as a result of the smoothening effects of steady remittances from overseas Filipinos.
Karacadag said Credit Suisse expects remittances to continue growing in 2008 because of the boom in oil-rich Saudi Arabia which hosts the largest number of overseas workers.
Although remittances might slow down this year, Karacadag said the strength would be maintained and this would provide the protection from the slowdown in G3 economies.
Moreover, Karacadag said the momentum in domestic demand is also strong because of accelerating consumption and investments. In addition, the country also has historically low risk premiums and local interest rates.
“We see modest risk to our below-consensus GDP growth forecast of 5.6 percent for 2008,” Karacadag said.