PH less vulnerable to external shocks – Fitch

MANILA, Philippines – Fitch Ratings has tagged the Philippines, along with India and Vietnam as emerging economies that are less vulnerable to external shocks.

Fitch Asia-Pacific Sovereigns Head Andrew Colquhoun said the 3 countries are less exposed to the external risks that prompted the debt watcher to lower its global economic growth forecast to 2.3% this year.

“The picture for emerging markets is not uniformly gloomy and some countries including India, Philippines and Vietnam are less exposed to the current conjunction of risks,” Colquhoun said.
 
In its latest special report entitled, “Emerging market vulnerability weighing on global growth outlook,” Fitch tagged the much anticipated interest rake hike by the US Federal Reserve, the sharp slowdown in China, and the weaker-than-expected recovery in Japan as the major factors affecting the global economy.
 
Fitch has cut its global growth forecast for 2015 to 2.3%, the weakest since 2009, in large part driven by pressures on emerging markets – recession in Brazil and Russia, and the ongoing structural adjustment in China.

Emerging markets are becoming an increasing source of global growth risks as the collapse in commodity prices and political shocks exacerbate a secular slowdown. Nevertheless, the impact would still be large compared to major advanced economies. Australia would be affected similarly to ASEAN economies, with a 1.8 percentage point GDP impact by 2017.

“This is the net effect of the large exposure through direct trade channels to China and the counter-cyclical policy options available to a developed country with sound fundamentals,” Ftich said.

The credit rate sees the GDP growth in emerging markets picking up to 2.7% in 2016 and 2017 as well as 2% in major advanced economies next year.

Less affected

The debt watcher said members of the Association of Southeast Asian Nations (ASEAN), including the Philippines, Indonesia, Malaysia, and Thailand would be less affected by the impact of the sharp slowdown of the Chinese economy that has risen over the past 3 months.

It added that ultra-open Asian economies including Singapore, Hong Kong, and Korea would be hit the hardest by the shock. The cumulative effect on gross domestic product (GDP) will reach 3 percentage points in Singapore; 4.5 percentage points in Hong Kong; 4.3 percentage points in Korea; and 3.3 percentage points in Taiwan in 2017.

India would be less affected by falling demand in China, but the increasing risk premium complicates the monetary policy response to the shock, Fitch said.

Fitch also maintained the Chinese GDP would avoid a hard landing as it is expected to expand by 6.8% this year and by 6.3%next y ear despite the recent market turbulence.

“The ASEAN countries (Indonesia, Malaysia, Thailand, and the Philippines) would be less affected, with GDP gap reaching around 2 percentage points by 2017 in all 4 countries,” it added.

The debt watcher said the exchange rate flexibility in the region would help mitigate the shock, including the increase in risk premium, while the delay in the US Fed tightening would have some positive effects. – Rappler.com