Impact of Hong Kong recession watched

By Jenina P. Ibañez

ANY IMPACT on the Philippines by Hong Kong’s economic hit from five months of unrest will likely be felt on the merchandise export and remittance fronts, economists and an export leader said on Tuesday, even as they said any negative effect on the overall economy should be minimal.

Reuters reported that Hong Kong leader Carrie Lam said on Tuesday that she expects the economy of China’s special administrative region to contract this year, a day after Financial Secretary Paul Chan said the Asian financial hub has already slipped into recession, technically defined as two straight quarters of economic decline.

“The protracted political tension in Hong Kong is projected to affect both trade and remittance flows to the Philippines, and although we’ve yet to see if recent slowdowns in both trade and OF (overseas Filipino) transfers are becoming more entrenched, the impact will likely weigh on [overall economic] growth, with the impact emanating from the threat to remittances likely the bigger threat,” ING Bank NV-Manila Branch Senior Economist Nicholas Antonio O. Mapa said in an e-mail.

In his e-mailed response to questions, Rizal Commercial Banking Corp. (RCBC) economist Michael L. Ricafort said: “This may have an adverse impact on the employment of OFWs in Hong Kong especially on expatriates, skilled workers, professionals, service industry workers, as well as domestic helpers.”

Remittances from overseas Filipino workers (OFW) have long been an anchor of household spending, which in turn fuels 70-75% of gross domestic product.

Latest available central bank data show Hong Kong as the seventh biggest source of OFW cash remittances in the eight months to August — behind the United States (37%), Saudi Arabia (7.4%), Singapore (6.4%), the United Arab Emirates (5.7%), the United Kingdom and Japan (each with 5.3%) and Canada (3.5%) — accounting for 2.7% of a $19.808-billion total with $529.492 million, down 2.8% from the previous year (which had seen 11.1% growth).

Mr. Ricafort also said that “economic recession in Hong Kong could have some adverse impact on the Philippine economy since Hong Kong is the fourth biggest export destination of the Philippines.”

Latest Philippine Statistics Authority (PSA) data show Hong Kong as the fourth-biggest foreign market for Philippine goods in the eight months to August behind the United States (16.4% of the $46.642-billion total), Japan (14.9%) and mainland China (13.8%) with a 13.3% share of a $46.642-billion total at $6.202 billion, which was 5.7% less than a year ago.

The financial hub was also the Philippines’ 10^th biggest source of merchandise imports in the same period, accounting for 3.2% of a $71.345-billion total with $2.311 billion (up 15.8% year-on-year).

“Based on latest available data from January to June 2019, the biggest Philippine exports to Hong Kong are electronics, which account for about 80% of the total Philippine exports to Hong Kong, or at $3.5 billion; followed by exports of gold with a share of 12.3% or $543 million,” Mr. Ricafort said.

“Thus, these leading Philippine exports to Hong Kong remain vulnerable to any slowdown in demand amid risk of recession in Hong Kong.”

Noting that Philippine merchandise exports have been “increasing minimally” on the whole so far — by a flat 0.1% as of August — Philippine Exporters Confederation, Inc. President Sergio R. Ortiz-Luis Jr. said in a phone interview that “[s]omehow it’s (the impact of Hong Kong’s unrest) compensated in spite of what’s going there.”

Mr. Ortiz-Luis said that Philippine exporters can arrange to ship directly to countries where their goods are in demand, instead of passing through Hong Kong as a transshipment hub. “We will still try to look for a placement to send orders being ordered from Hong Kong, and… wait and see,” he said.

Still, any impact on the Philippines’ overall economy should be minimal.

“Given that the Philippines relies less heavily on external trade for growth, the impact on this angle may be limited as the true strength of the economy is in the domestic sector,” ING’s Mr. Mapa said.

Asked about the decline in remittances, he replied: “We will have to monitor if this continues to be a trend as Filipinos may have had trouble sending home these remittances on weekends, given that protests are scheduled usually on the weekend.

“If this materializes into a true deceleration in flows from Hong Kong, this may weigh heavily on the families back home who rely on these transfers for daily consumption and expenses.”

The central bank itself had said on Oct. 18 that “[t]he impact of… geopolitical tensions, particularly in Saudi Arabia (where oil processing facilities of Saudi Aramco were attacked in mid-September) and Hong Kong, on the country’s remittance flows, has been notably minimal as the share to total cash remittances of these affected countries are relatively small.”

The Department of Finance chimed in, saying that the Philippine economy is driven largely by domestic consumption. “Remittances and trade account for a smaller proportion of growth,” Undersecretary Gil S. Beltran, the department’s chief economist, said in a mobile phone message. “The downturn in HK economy will affect trade and remittances, but the continuing growth in trade and remittances from other Asian trading partners will make up for this.”

“In terms of government policy,” Mr. Ricafort said, “further diversification of Philippine exports and deployment of OFWs to more countries around the world, especially outside traditional markets/destinations/host countries such as Hong Kong, would help mitigate risks of economic recession/downturn in Hong Kong.”