Yuan depreciation may be good for PH exports

Philippine exports may see a resurgence in the coming months as China’s weaker currency provides an economic lift that covers the entire Asia-Pacific region.

The International Monetary Fund (IMF), in a new report, emphasized the close ties between China and its smaller neighbors. In the analytical chapters of its upcoming World Economic Outlook (WEO), the IMF said the Asia-Pacific region should be seen as a system, with China in the center.

“According to the conventional view, yuan depreciation unambiguously increases demand for Chinese goods and lowers demand for goods produced elsewhere in Asia,” the IMF said. “As a result, depreciations are beggar-thy-neighbor.”

However, this model no longer applies to Asia, the IMF said, noting the closer integration between China and other producers in the region.

“Because production in China is linked to its Asian supply chain partners, the yuan depreciation can make the supply chain’s final product more competitive, stimulating demand for value added at each stage of production,” it said.

Last month, China allowed its tightly controlled yuan to depreciate against the dollar—part of an ongoing efforts by Beijing to make its currency more sensitive to market forces. The weaker yuan is also expected to help revive China’s flagging export sector.

Data released last week showed Chinese manufacturing activity at its weakest in six years. Similarly, Philippine manufacturing output has been declining since May.

The Philippine Statistics Authority’s earlier this month said factory output in terms of volume for July 2015 contracted by 0.5 percent, much slower than the 3.0 and 1.6 percent declines in May and June 2015, respectively.

In terms of value, output contracted by 6.9 percent along with its three-month moving average which posted a 7.5-percent drop.

We must diversify and ensure the quality of our export-oriented products, which is the key to surviving the continuing weak global demand and stiffer competition in the global market,”  Economic Planning Secretary Arsenio M. Balisacan said in a statement.