Philippines to gain from China rebound – Moody’s unit

MANILA, Philippines — The Philippines, along with Thailand and Vietnam, has the most to gain if travel from China rebounds to levels prior to the COVID-19 pandemic, according to Moody’s Analytics.

In a report, the research arm of the Moody’s Group said the tourism industries in the Philippines and the two other countries depend the most on visitors from China who made up between 20 and 35 percent of total tourist arrivals in 2019.

Steven Cochrane, chief Asia-Pacific economist at Moody’s Analytics, said that international tourism offers some upside potential to a number of regional economies.

“The removal of entry restrictions across most of the region, combined with the elimination of regulatory barriers in China for traveling abroad, creates good potential for high-spending Chinese tourists to boost service-providing industries in the Asia-Pacific region,” Cochrane said.

He said that most pent-up demand in China is among higher-income households who already are spending more on luxury goods within China.

According to Cochrane, 2023 seems to be offering as much uncertainty and possibly more for the region after 2022 ended up being a year of uncertainty and volatility.

“The Asia-Pacific region starts 2023 from a position of slowing growth and still-high inflation. The region was hit by falling global trade and China’s zero-COVID policy in the second half of last year,” he said.

Cochrane noted that the Philippines enjoyed the beginning of a strong recovery in the second half after the longest period of pandemic-related restrictions in Asia.

With the reopening of the economy, the Philippine economy sustained a strong rebound with a gross domestic product (GDP) growth of 7.6 percent last year, slightly higher than the 6.5 to 7.5 percent target penned by the Cabinet-level Development Budget Coordination Committee (DBCC).

For this year, Moody’s Analytics sees the Philippine economy growing by only 7.1 percent. The figure, however, was still higher than the six to seven percent target range pegged by economic managers, as Moody’s Analytics expects the economy in the region to accelerate as the year progresses.

“China will have the strongest acceleration as it transitions from the era of the zero-COVID policy that created deep uncertainty over most of 2022. The nearly instant and complete policy pivot in December offers the potential for a much quicker recovery than has been experienced elsewhere. ASEAN economies, South Korea and Australia will follow suit, but with much shallower trajectories,” Cochrane said.

The research unit believes that the greatest risk to the optimistic outlook is that US and European economies falter and fall back into recession, delaying the improvement in demand for imported goods and services.

“The baseline forecast does not envision recession in the developed economies or globally, but the risk of recession in the US and Europe is uncomfortably high,” he said.

He added that the war in Ukraine is an additional risk because fighting would likely escalate with the spring thaw.

He said that new sanctions on energy products from Russia and ensuing supply-chain constraints could reignite inflation and derail the outlook for accelerating economic growth in the second half of 2023 and into 2024.

Moody’s Analytics said rising demand in China would accelerate inflation rate, which has been quite low through the COVID-19 pandemic.