MACTAN ISLAND, Cebu: The Philippines is “well-placed” to absorb the external shocks that threaten world economies, particularly the repercussions of China’s economic slowdown, the International Monetary Fund (IMF) said on Friday.
Odd Per Brekk, director at IMF’s regional office for Asia and the Pacific, said given the Philippines’ flexible and efficient macroeconomic policy, economy activity in the country continues to be robust amid the spillover effects of global headwinds that have been hitting the international financial markets.
“In general, we think the Philippines is quite well placed to manage the spillover effects on the international financial markets,” Brekk told reporters in a press conference on the sidelines of the Asia Pacific Economic Cooperation (APEC) Finance Ministers’ Meeting and Related Meetings here.
Brekk was referring to weakening export demand from China and the impact of its recent monetary policy move, particularly the devaluation of the renminbi.
The IMF official said the Philippines has enough fiscal and monetary space, strong current account surplus and sufficient international reserves that will allow the country to respond accordingly to the spillover effects of slowing global economies and adverse market reactions.
The latest data shows the country’s current account in the first quarter remains in positive territory, with a surplus of $3.3 billion on the back of a smaller trade gap and higher net receipts from the service sector, primary and secondary income accounts, coupled with a narrowing grade-in-goods deficit.
As of August, the country’s international reserves had ample cover for 10.5 months of merchandise imports and payments of services and income despite having slipped to $80.3 billion.
Strong Asia performer
Mitsuhiro Furusawa, IMF deputy managing director, said the country’s macroeconomic policy will shield it from the impact of the slowdown in China’s economy.
The Philippine situation is quite good, compared with neighboring countries that have trade relations with China, Furusawa said.
In July, China was the Philippines’ second top export market, accounting for 16.3 percent of the Southeast Asian country’s total outbound shipment during the month.
In the second quarter of 2015, the Philippines continued to be one of the fastest growing economies in Asia despite its lower-than-expected 5.6 percent growth in gross domestic product (GDP) at the time.
The Philippines posted the third highest economic growth in the region, behind only China and Vietnam.
“We think that with the spillover effects, the Philippines will be less affected by the slowdown of the Chinese economy. We congratulate the performance and the good macroeconomic policy of the government,” Furusawa added.
Indirect impact from China
If remittances from overseas Filipino workers (OFWs) in China-dependent countries fall, however, the Philippines could still suffer a drag on its economy, said an analyst from the Bank of the Philippine Islands (BPI).
“We agree with this [IMF] general assessment given the smaller contribution of exports to total output relative to [that of]our neighbors,” Emilio Neri Jr., lead economist and vice president at the Bank of the Philippine Islands, said in an e-mail to The Manila Times.
But Neri added: “While we don’t export much, a lot of Filipinos deployed in countries that are highly dependent on China’s economy may experience financial difficulties if China, indeed, slows down too fast.”
The latest data shows that major sources of cash remittances from overseas Filipino workers in the first half of 2015 were the United States, Saudi Arabia, the United Arab
Emirates, the United Kingdom, Singapore, Japan, Hong Kong and Canada.
Such remittances coursed through banks during the first half climbed to $12.08 billion, or 5.6 percent, over the amount sent in the same period last year.
“Since two-thirds of [the output of the]Philippine economy comes from consumption, which in turn, is dependent on remittances, we could feel a non-negligible drag of these spillovers on the local economy as well,” Neri explained.