Worries in the region over the so-called “hard landing” of the Chinese economy are of little consequence in the Philippines where “spectacular” growth has been achieved on the back of domestic forces, Southeast Asia’s biggest bank said.
In a quarterly report, Singapore’s DBS Bank Ltd. warned that growth in the region might start to slow this year as China, which has replaced the United States as the continent’s main economic engine, could enter a period of moderation.
The Philippines, however, would stand out as one of the few countries Southeast Asia expected to shrug off fears over China.
“Moderation in China’s GDP (gross domestic product) growth is unlikely to have any significant impact on Philippine growth,” the bank said.
“Economic growth has been spectacular over the past year,” DBS said, noting that the Philippines expanded by an average 6.9 percent over the last four quarters ending March. Most of this growth was driven by domestic consumption, which is fueled by remittances from migrant workers.
Investment growth, due to the acceleration in state spending and private construction, was also a main driver for the Philippines’ economic expansion.
For the rest of the region, growth held up in the past years despite the global financial crisis due mainly to sustained demand from China. This demand is expected to wane as Beijing intentionally engineers a shift for the Chinese economy to rely more on domestic consumption instead of exports and investments.
DBS said the Philippines’ exports to China have dropped due to this shift. However, the portion of exports to China relative to the Philippines’ total shipments was almost negligible.
“(The Philippines’) lackluster exports over the past six quarters can be better explained by the generally weak global demand for electronics rather than the slowing Chinese economy,” DBS said.
Tourist arrivals to the Philippines from China are also expected to hold up as they had in the past four years despite various diplomatic tussles, ranging from the Manila hostage crisis in 2010 wherein several Hong Kong tourists were killed to ongoing territorial disputes in the West Philippine Sea.
“The uptrend in Chinese visitor arrivals is likely to continue as the moderating of China’s headline growth is likely to be driven by slower investment, not consumption,” DBS said. “The Philippine economy is well-positioned to weather a more modest pace of Chinese economic growth with limited constraints on policy making.”
For the rest of the region, the picture is bleaker. DBS noted that between 2008 and 2012, the world’s leading economies—the United States, Europe and Japan—were stagnant. Asia, for its part, grew by nearly a third, with much of the expansion coming from China.
After a decade of double-digit growth rates that gave the rest of the region a large market for their products, China’s government now seems content with a more moderate pace of expansion of about 7 percent in the next five years.
“If China is now the driver for Asian global growth, isn’t it the new risk as well? Our answer all along has been: Absolutely,” DBS said.