By Elijah Felice Rosales, January 29 2019; Business Mirror

Image Credit to Business Mirror

THE Philippines could fall short of becoming an upper middle-income economy this year, as the protracted trade conflict between the United States and China is seen by a World Bank economist to take a toll on the country’s growth.

Andrew D. Mason, acting chief economist for East Asia and the Pacific of the World Bank, said it will be difficult for the country to become an upper middle-income economy in the collapse of the multilateral trading system. He argued the virtual trade war between the US and China will—one way or the other—affect the economic pace of the Philippines.

“Any trade war, if it lasts long enough, is going to have a negative effect on both local and global growth,” Mason said on Monday.

Foreign investments originally intended for China could be diverted to the Philippines, according to Mason, as investors are becoming wary of the consequences of opening shops there given the heavy tariffs imposed by the US on Chinese goods. However, he warned, exports could take a hit in the long run, as the conflicting economies are top importers of Philippine products.

“The other side is to the extent that the Philippines provides inputs and components to China, and China’s growth [and] demand [for their products are] adversely affected, then that will have a negative effect on Philippine exports to China,” Mason said.

China is the country’s fourth- largest export market at $8.14 billion from January to November of last year, according to data from the Philippine Statistics Authority. Exports to China amounted to $8.01 billion in 2017.

On top of the trade conflict, the World Bank economist said the peso could be challenged if the US Federal Reserve (the Fed) delivers interest rate hikes this year.

“We also know that what happens in the Philippines will be affected by whether the US Fed continues to raise interest rates or not. That has affected interest rates here in the Philippines, [and] it has put pressure on your currency and so on,” Mason explained.

Socioeconomic Planning Secretary Ernesto M. Pernia last year forecast that the country will be an upper middle-income economy by as early as 2019, not 2022, which was the government’s target.

Upper middle-income economies should have a per-capita income of $3,896 to $12,000. In 2017 the Philippines had a per-capita income of $3,660, according to figures from the World Bank.

Pernia on Monday said per- capita income grew 4.1 percent, estimated at about $150, last year.

He argued the Philippines can still hurdle the threshold if per- capita income expands by 3 percent this year. Pernia added it is important for the government to keep macroeconomic fundamentals sound and strong for the country to become an upper middle-income economy.