Impact of US-China trade war on PH seen minimal

Trade tensions between the United States and China are unlikely to make a dent on the Philippines’ economic growth this year as the country’s trade with these two economic giants remained small, London-based Capital Economics said.

“The trade war between the United States and China has so far had a very small impact on the rest of Asia, which has been dwarfed by the much bigger impact of the slowdown in global growth and the downturn in the technology sector. Even for the most exposed countries, a further escalation in the trade war is not likely to have a significant effect on growth over the next year,” Capital Economics senior Asia economist Gareth Leather said in a May 13 report titled “The impact of the trade war on the rest of Asia.”

Capital Economics said that even as the trade war between Washington and Beijing escalated last week, “the overall effect of the trade war to date has been small.”

China already vowed retaliatory” tariffs after the United States jacked up import duties to 25 percent from 10 percent previously on $200 billion worth of goods from the mainland.

“For the region’s least open economies such as India and Indonesia, the impact will have been negligible. For Taiwan and South Korea, the effect is also likely to have been small as an increase in exports to the United States has helped to offset a decline in exports to China,” Capital Economics said.

In the case of the Philippines, Malaysia, Singapore and Thailand, “the net effect of the trade war will have been to knock only 0.1-0.2 percentage point from GDP growth,” it said.

For Capital Economics, policy easing would help cushion the blow even further.

“Most governments in the region have loosened fiscal policy over the past year to help offset the drag from weak export demand. The strong fiscal position of most countries in the region means policy could be loosened further. The worsening of the trade war also increases the likelihood of further monetary policy easing. So far this year, the central banks of India, the Philippines and Malaysia have cut interest rates. We expect further easing in all three, as well as in South Korea,” Capital Economics said.

Last Thursday, the Bangko Sentral ng Pilipinas’  policy-making Monetary Board cut the policy rate by 25 basis points (bps) to 4.5 percent as it cited the declining headline inflation rate, making the outlook on prices “manageable.”

The rate of increase in prices of basic commodities fell to a 16-month low of 3 percent in April, averaging 3.6 percent during the first four months—already within the government’s 3-4 percent target range. —BEN O. DE VERA