Emerging Asia is facing downside risks this year from the softening in some of its largest economies, but the Philippines appears to be in a good position and may stay buoyant, said a visiting economist from American banking giant Citibank.
In an interview with Inquirer last week, London-based Citibank managing director for emerging market economics David Lubin said that while the growth story was still in emerging markets, there were risks of softening in large Asian markets like China, India and Indonesia.
The economist said China, which has been trying to put on the brakes on economic growth since 2010, still had ample monetary and fiscal stability to grow its economy by 8.4 percent this year. But over the medium term, he said China’s increased dependence on credit since the Lehman Brothers collapse three years ago could still lead to some vulnerabilities.
Aside from risks in China, Lubin said some countries like India and Indonesia are not fulfilling their potential.
“Both have weak commitment to structural reform. Both have deteriorating external balances, both at danger of losing control of inflation expectations and both have elections in 2014, which could postpone commitment to structural reform,” he said.
“I would say that, the Philippines still looks like an island of stability in a way,” Lubin added, noting that inflation expectations were well-anchored.
“There’s no asset or price bubble. Although the peso has appreciated in real terms certainly compared to other currencies in emerging economies, the exchange rate has no obvious sense of overvaluation,” Lubin said.
On the real economy, Lubin noted that the engines of growth in the Philippines from outsourcing, technology sector and food processing “seem reasonably strong.”
Lubin also said that China would likely generate about a third of global growth this year and, combined with the output of other emerging markets, could account for about half.
Meanwhile, with the developed economies of the world under duress, Lubin said “financial repression” such as restricting speculative capital flows would likely be more prevalent among emerging markets for quite sometime.
“It’s clear that some emerging economies are unhappy about the scale of inflows and find it difficult to manage those flows,” Lubin said.
One of the themes rising among developed markets, the economist said, was financial repression and added that capital controls were just another form of such repression.
“We’ve lived through a generation of more or less unrestricted financial liberalization, and in a kind of post-crisis environment, that game is no longer being played. So governments in developed countries will be more interested in financial repression and governments in emerging markets as well will follow that path partly because many emerging markets were already relatively repressed,” Lubin said.
Such repression is already evident in large emerging markets like China, India, Egypt and Russia, where government-owned financial institutions are responsible for a large stock of credit.
“Just as we lived through a generation of financial liberalization, I think we’re now in a period of financial de-liberalization, which will last a long time,” he said.—Doris C. Dumlao