THE PHILIPPINES is among the many nations which can be most uncovered to spillover effects from financial shocks and volatility in developed markets, the ASEAN+3 Macroeconomic Analysis Office (AMRO) stated.
Elevated interconnectedness amongst ASEAN+3 financial establishments, markets and economies highlights the potential for contagion because the area stays prone to shocks from world components and developed economies, AMRO stated in its ASEAN+3 Monetary Stability Report 2024 launched on Thursday.
“International components have significant spillover effects on ASEAN+3 monetary methods. Japan and Korea, and the regional financial facilities (Hong Kong and Singapore), Malaysia and the Philippines are most uncovered to world components such because the VIX (CBOE Volatility Index), macroeconomic threat, commodity costs, and the US greenback change fee,” it stated.
“The financial markets of developed economies (North America, the UK, and Europe) have sturdy contagion results on ASEAN+3, as indicated by the proportion of variation in ASEAN+3 inventory market returns attributable to shocks within the inventory market returns of those developed economies. All ASEAN+3 economies have important hyperlinks to monetary methods in developed economies, with fairness returns in Hong Kong, Japan, Korea, Malaysia, the Philippines, and Singapore being notably delicate to shocks from developed markets.”
Developed economies’ affect on ASEAN+3 is stronger in contrast with the “reasonable” spillover effects from rising market economies exterior the area, resembling these in Latin America and the Center East, it stated.
In the meantime, the Philippines has the least publicity to intraregional financial spillovers, AMRO stated.
“The Philippines is a really completely different economic system from the opposite ASEAN (Affiliation of Southeast Asia Nations) nations within the sense that it’s a very service-driven economic system, but it surely has been very resilient in the previous couple of years after the large shock in 2020,” AMRO Chief Economist Hoe Ee Khor stated in a digital briefing, referring to the coronavirus pandemic.
Mr. Khor stated the Philippines ought to maximize potential investments in renewables, enterprise course of outsourcing, and tourism to spice up the economic system’s resilience to exterior shocks.
“However to do this, they should develop the infrastructure… [It is] one of many weaknesses of the economic system. The coverage makers are conscious of that, they usually have a really formidable infrastructure plan,” he added.
“And with that, I believe the Philippine economic system will develop fairly quickly.”
AMRO stated the panorama in ASEAN+3 markets has developed since end-2023 as dangers related to excessive inflation and rates of interest have subsided however these associated to geopolitical points have worsened.
The beginning of the US Federal Reserve’s rate-cut cycle in September has led to easing financial situations globally, it stated, however the battle within the Center East and the upcoming US presidential election proceed to current dangers for monetary markets.
The area’s reliance on the US greenback additionally exposes it to dangers of potential funding scarcity and the transmission of shocks during times of financial tightening or geopolitical tensions, it added.
ASEAN+3 economies’ rising interconnectivity highlights the necessity to “take a holistic macroeconomic and monetary view of the area to safeguard in opposition to systemic dangers,” AMRO stated.
“Within the close to time period, authorities ought to keep alert to the dangers of inflation resurgence, escalating geopolitical tensions, or a worldwide progress slowdown, all of which might problem the resilience of the ASEAN+3 monetary system. Given the elevated interconnectedness of economic methods, steady monitoring of worldwide spillovers is crucial, together with strengthening ASEAN+3-centric surveillance and cooperation. This contains enhancing cross-border surveillance, knowledge sharing, regional stress testing, home-host supervision, and liquidity assist to handle and mitigate potential spillover dangers successfully,” Mr. Khor stated.
“To enhance resilience in opposition to exterior shocks throughout the dollar-reliant setting, ASEAN+3 economies ought to reinforce their financial and monetary fundamentals, strengthen surveillance frameworks for monitoring US greenback liquidity situations, bolster macroprudential frameworks for banks and NBFIs (nonbank monetary intermediaries), and supply financing assist to member economies going through US greenback liquidity stresses. Moreover, lowering structural dependence on the US greenback within the medium to long run by encouraging using native currencies and establishing cross-currencies fee methods needs to be a precedence,” he added.
The area also needs to monitor potential dangers in the actual property sector, “as weakened demand and tighter monetary situations in a number of economies have severely impacted the monetary well being of property builders, resulting in declining profitability, liquidity, and debt servicing capability,” AMRO stated.
“Although to a lesser extent than the Plus-3 economies (China, Korea, Hong Kong, Japan), ASEAN economies like Cambodia, Malaysia, the Philippines, Thailand, and Vietnam face comparable points with excessive unsold inventories and/or delayed initiatives,” it stated.
Nonetheless, Mr. Khor stated dangers to monetary stability within the area seem to have eased this yr in contrast with the state of affairs in 2023.
“The present local weather of sturdy progress and disinflation presents regional coverage makers a possibility to cut back debt, rebuild coverage house, and strengthen fiscal capability to raised handle potential shocks. Replenishing overseas change reserves throughout occasions of capital inflows can additional improve market confidence and supply a buffer in opposition to excessive market volatility,” he stated.
“To sort out the near- to long-term dangers and challenges to ASEAN+3’s monetary stability, the area should come collectively as one and attempt for resilience and stability,” Mr. Khor added. — Beatriz Marie D. Cruz
