China’s growth shock anticipated to have a diminished effect

Fitch Ratings Senior Director Duncan Innes-Ker stated that while a severe economic growth shock in China would impact the Philippines, it would be less significant compared to other Asia-Pacific countries. In 2022, around 13 percent of the Philippines’ goods exports went to China, indicating some exposure through the export channel. However, this exposure is comparatively lower than countries like Taiwan, Korea, Chile, Peru, and Australia.

Fitch’s analysis highlighted vulnerabilities in APAC markets closely linked with China, with potential slowdowns in real GDP growth for countries such as Korea, Taiwan, Vietnam, Singapore, Malaysia, and Hong Kong. In the Philippines, the impact in 2024 under the China growth shock scenario is projected to be relatively mild, with a slight slowdown in real GDP growth expected in 2025.

Innes-Ker emphasized that Fitch’s analysis did not include potential fiscal responses by Philippine authorities, which could mitigate the impact. Meanwhile, Middle Eastern energy exporters and other commodity-producing countries reliant on Chinese demand are also expected to face challenges.

Developed markets outside APAC, although generally less affected, may still experience declines in real GDP growth, particularly those with significant export exposure to China like Germany. Innes-Ker noted that economic growth plays a crucial role in Fitch’s Sovereign Rating Model, as it impacts various structural, macroeconomic, and public finance metrics, potentially affecting sovereign credit profiles and ratings.

The shock from China’s slowdown is expected to put pressure on global demand, especially on commodity prices like metals and oil, with a lesser impact on food and gas prices. Consequently, consumer price inflation is forecasted to decrease in many countries worldwide over 2024-2025.

Business News: China’s growth shock anticipated to have a diminished effect