Trade war impact minor, attracting locators seen as key while firms flee China — NEDA

THE National Economic and Development Authority (NEDA) said the trade war is expected to dampen Philippine growth by only a tenth of a percentage point, but highlighted the importance of improving the economy’s attractiveness to locators fleeing China.

NEDA Undersecretary Rosemarie G. Edillion said Thursday that that according to NEDA’s simulations, “GDP growth will be slower by point one (0.1) percentage point.” She was speaking to reporters after the Development Budget Coordination Committee (DBCC) 2020 budget briefing in the Senate.

The Philippines will get by for the short term because its economy is more domestically-driven than the region’s more export-oriented economies, Ms. Edillon said a prolonged trade war will have “bigger repercussions” on the economy, which she did not quantify.

The US recently imposed 15% tariffs on Chinese imports including electronic products and footwear while China imposed new duties on $75-billion worth of US products.

Ms. Edillon said the opportunity lies in attracting investment from locators seeking alternatives to manufacturing in China, where their goods are subject to US tariffs.

“It’s really about attracting many more locators. Many of them are looking for other bases for their manufacturing… We need to be very competitive and that’s why we’re really pushing for many amendments, many reforms to the Investment Act, Public Service Act, so that we can open up our utilities sector and bring down the cost by introducing competition there.”

Trade Secretary Ramon M. Lopez has said that the manufacturing sector is still expected to post “modest growth” in spite of the trade war.

He noted the “modest improvement” in business conditions for factories after a Purchasing Managers’ Index reading of 51.9 in August, still expanding but slower than the July reading of 52.1, according to IHS Markit.

A PMI reading of 50 and above signals an expansion of purchasing, a leading indicator for future economic activity. A reading of below 50 indicates a contraction.

The Philippines’ PMI reading was second in the region next to Myanmar’s 52.

Second-quarter gross domestic product was weaker than expected at 5.5%, which economic managers blamed on the delayed 2019 budget. The economy now has to grow by at least 6.4% in the second half to hit the lower end of the government’s full year target band of 6-7%. — Beatrice M. Laforga