Fitch tags Philippines among least at risk from global shocks

MANILA, Philippines - Fitch Ratings has tagged the Philippines, India, and Vietnam as emerging market economies that are less vulnerable to external shocks brought about by uncertainties from the impending interest rate hike in the US and China’s economic woes.

Andrew Colquhoun, head of Asia-Pacific Sovereigns at Fitch, said the three countries are less exposed to the external risks that prompted the debt watcher to lower its global economic growth forecast to 2.3 percent this year.

 “The picture for emerging markets is not uniformly gloomy and some countries including India, Philippines and Vietnam are less exposed to the current conjunction of risks,” Colquhoun said.

In its latest special report titled “Emerging market vulnerability weighing on global growth outlook,” Fitch tagged the much anticipated interest rake hike by the US Federal Reserve, the sharp slowdown in China, and the weaker-than-expected recovery in Japan as the major factors affecting the global economy.

“Fitch has cut its global growth forecast for 2015 to 2.3 percent, the weakest since 2009, in large part driven by pressures on emerging markets – recession in Brazil and Russia, and the ongoing structural adjustment in China.

The debt watcher said members of the Association of Southeast Asian Nations (Asean) including the Philippines, Indonesia, Malaysia, and Thailand would be less affected by the impact of the sharp slowdown in the Chinese economy.

It added ultra-open Asian economies including Singapore, Hong Kong and Korea would be hit the hardest by the shock. The cumulative effect on GDP reaching three percentage points in Singapore, 4.5 percentage points in Hong Kong, 4.3 percentage points in Korea, and 3.3 percentage points in Taiwan in 2017.

Fitch said India would be less affected by falling demand in China, but the increasing risk premium complicates the monetary policy response to the shock.

Fitch maintained the Chinese gross domestic product (GDP) would avoid a hard landing as it is expected to expand by 6.8 percent this year and by 6.3 percent next year despite the recent market turbulence.

“The Asean countries (Indonesia, Malaysia, Thailand and the Philippines) would be less affected, with GDP gap reaching around two percentage points by 2017 in all four countries,” it added.

The debt watcher believes the exchange rate flexibility in the region would help mitigate the shock, including the increase in risk premium while the delay in the US Fed tightening would have some positive effects.

It added emerging markets are becoming an increasing source of global growth risks as the collapse in commodity prices and political shocks exacerbate a secular slowdown.

“Nevertheless, the impact would still be large compared to major advanced economies. Australia would be affected similarly to Asean economies, with a 1.8 percentage point GDP impact by 2017. This is the net effect of the large exposure through direct trade channels to China and the counter-cyclical policy options available to a developed country with sound fundamentals,” Fitch said.

The credit rate sees the GDP growth in emerging markets picking up to 2.7 percent in 2016 and 2017 as well as two percent in major advanced economies next year.