While many economies in emerging Asia are expected to slow down in the near term, the Philippines will remain among the best performers given the government’s massive infrastructure push, London-based Capital Economics said.
In an Aug. 23 report titled “Further slowdown ahead,” Capital Economics Asia economist Alex Holmes said that “growth only slowed a touch in emerging Asia last quarter, but weakening export demand and tighter monetary policy mean that the region’s economies are likely to cool further over the next year or so.”
A number of countries saw a slight pick-up in growth [in the second quarter], including Indonesia, Taiwan and Korea, but this was more than offset by slower growth elsewhere, with the sharpest slowdown seen in Hong Kong, closely followed by Malaysia, Holmes noted.
In the case of the Philippines, the government reported this month that the gross domestic product (GDP) grew 6 percent year-on-year during the April-to-June period, the slowest in three years and below expectations a mid high consumer prices as well as the implementation of a number of environmental policies that affected the agriculture and services sectors, including the six-month closure and rehabilitation of top tourist destination Boracay Island.
With average GDP growth of 6.3 percent in the first half, the economy needed to expand by 7.7 percent during the second semester to hit at least the lower end of the government’s full-year target range of 7-8 percent.
“Looking ahead, growth looks set to slow further. For a start, our forecasts for global growth suggests that export demand is likely to ease over the coming quarters. And the risks lie to the downside. With many economies in the region heavily integrated into the Chinese supply chain, further escalations in the US-China trade conflict would cause negative spillovers for the rest of Asia. Taiwan, Malaysia and Singapore in particular stand out as the most exposed,” Holmes said.
Tighter monetary policy will also weigh on investment and consumer spending,” Holmes added.
This month, the Bangko Sentral ng Pilipinas increased the key policy rate by 50 basis points to 4 percent—the most aggressive hike in 10 years on the back of higher-than-expected inflation.
Holmes nonetheless pointed out that there were some factors that would help cushion the growth slowdown across the region.
Fiscal policy should remain supportive throughout most of the region—the Philippines, Thailand and Taiwan all have ambitious infrastructure projects in the pipeline while Singapore and Korea both have expansionary budgets, he said.
Holmes was referring to the Duterte adminstration’s ambitious “Build, Build, Build” program to roll out 75 “game-changing” flagship projects while spending up to P9 trillion on hard and modern infrastructure until 2022.
As such, while growth in the region overall is set to slow at a gradual pace, some countries will fare better than others, Holmes said.
“Growth should hold up best in South Korea and the Philippines, helped by loose fiscal policy,” according to Holmes.