FTAs to help Philippines recover from health crisis – HSBC

MANILA, Philippines — The completion of crucial multilateral trade agreements will help the Philippines recover from the economic fall out caused by the coronavirus disease 2019 or COVID-19 pandemic, according to British banking giant HSBC.

HSBC Philippines president and CEO Graham FitzGerald said the finalization of free trade agreements (FTAs) such as the Regional Comprehensive Economic Partnership (RCEP) and The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) would be a welcome and timely economic boost for businesses seeking to offset the impact of the COVID-19 outbreak.

FitzGerald said ASEAN members including the Philippines should conclude the negotiations ahead of the RCEP summit later this year.

“When economies come under threat of recession, businesses will instinctively move to ground where there is commercial oxygen, and one air pocket immediately available to policymakers is to sign these FTAs,” he said.

FitzGerald said the Philippines, Thailand, Indonesia and Vietnam have been weighing the cost and rewards of joining the CPTPP.

“But with global economic prospects not as bright as they were six months ago, these markets may need to choose pragmatism over perfection when assessing the viability of CPTPP. The risks of missing out may prove too costly,” he said.

CPTPP members have discussed widening the FTA to other members during their recent meeting in Mexico last month. There have also been suggestions that the RCEP would be signed later this year.

HSBC research estimates that ASEAN’s potential growth over the next 10 years, on average, could decline by 0.7 percentage points to 4.3 percent from the pre-COVID-19 level of five percent.

Put another way, COVID-19 could bring down ASEAN’s growth potential to levels last seen during the Asian financial crisis in 1998, with the region’s economic mainstays of large-scale infrastructure development and foreign direct investments (FDI)-enabled manufacturing growth being particularly affected.

The Philippines could also see a decline in its potential growth of about 0.6 percentage point to 0.8 percentage points as a result of reduced investment spending.

The country has relied heavily on capital investment growth for the past 10 years, particularly on infrastructure.

The United Nations Conference on Trade and Development (UNCTAD) expects a further 40 percent contraction in global FDI flows in 2020 and 2021 affecting manufacturing growth, productivity, and fiscal strength in ASEAN.

“While it may seem counter-intuitive, the current challenging economic outlook could actually be the perfect time for Southeast Asian countries to make strong and far-reaching economic and trade policy action such as finalizing the RCEP or joining the CPTPP,” FitzGerald said.

Signing of these FTAs would complement the Philippines’ overall investment reform programs including the Build Build Build program aimed at accelerating infrastructure spending and developing industries that would yield robust growth, create jobs and improve the lives of Filipinos.

The FTA would also complement the recently-approved Accelerated Recovery and Investments Stimulus for the Economy of the Philippines (ARISE) act aimed at supporting small and medium-sized enterprises to recover from the negative impact of the COVID-19 pandemic.