Philippines to gain the least from China reopening

MANILA, Philippines — The Philippines is expected to gain the least from the reopening of China, according to Malaysian financial giant Maybank.

“The Philippines will likely gain the least from a China reopening due to the smaller links with China on exports, tourism, and investments, but heavy dependence on energy imports,” said Chua Hak Bin, regional co-head of Macro Research at Maybank Kim Eng.

Chua said China’s reopening may not help improve the wide current account deficit of the Philippines, but could narrow the shortfall for Thailand and Vietnam.

“Thailand, Vietnam, and Singapore will see a big boost to tourism and exports, which will be partly negated by higher energy prices. Philippines will gain the least, due to smaller economic links with China, which will be negated by higher oil prices,” Chua said.

As of the first half of the year, the current account deficit of the Philippines swelled to $12 billion or six percent of gross domestic product (GDP). This was double the $6 billion shortfall or 1.5 percent of GDP booked for the whole of 2021.

The Bangko Sentral ng Pilipinas (BSP) sees the gap ballooning further to $20.6 billion or five percent of GDP this year.

The Philippines’ current account has widened to a large deficit of -7.7 percent of GDP as of the second quarter from just -1.3 percent a year ago on the back of surging import costs.

“The merchandise trade deficit with China is much smaller and has remained stable at around -4 percent of GDP, comparable to pre-pandemic levels. This suggests that a China reopening may not provide much support to the Philippines’ current account,” he said.

Furthermore, Chua said a China reopening would hurt energy importers, including the Philippines and Thailand, but would benefit energy exporters such as Indonesia and Malaysia.

According to Maybank, a one percent growth in China would add only 0.1 percent to the GDP growth of the Philippines.

Maybank sees the GDP growth of the Philippines accelerating to 6.5 percent, making it the second fastest growing economy in ASEAN after Vietnam’s eight percent for this year.

The Philippine economic growth is seen stabilizing at 5.3 percent due to the impact of inflation that is seen to quicken to 5.5 percent this year and ease to 4.1 percent next year from 3.9 percent last year.

Chua added that the Philippines, Thailand, and Vietnam have the largest trade deficits with China.

Maybank also expects the Bangko Sentral ng Pilipinas to deliver a 50-basis-point rate hike for the remainder of the year. This would bring the benchmark interest rate to 4.75 percent from an all-time low of two percent.

The central bank has so far raised key policy rates by 225 basis points, wiping out the 200-basis point rollback in 2020 as part of its COVID-19 response measures.

Chua believes that a China reopening would help ASEAN decouple from a US recession.

China is ASEAN’s largest market and accounts for 16.3 percent of the bloc’s total exports.

ASEAN exports to China stagnated this year. China accounted for 22 percent of ASEAN tourist arrivals pre-pandemic.